EU Commission: Recruitment

Lord Anderson of Swansea: asked Her Majesty's Government:
	Whether the rate of recruitment of United Kingdom nationals to all levels of the European Commission is satisfactory.

Lord Bach: My Lords, the United Kingdom currently holds the highest number of director posts and one of the highest number of director-general posts in the European Commission. Her Majesty's Government are working to ensure that recruitment of UK nationals to EU institutions broadly reflects our proportion of the total EU population. We are actively considering how to improve EU professionalism in the fast stream. The UK vision of an outward-looking global Europe is gaining ground in the EU, regardless of the number of UK nationals in the Commission.

Lord Anderson of Swansea: My Lords, whatever one's views on the European Union, surely it is in our national interest that we send our high-flyers to Brussels; yet, as I understand it, the number of people undertaking Civil Service training for the fast stream last year fell to just three. Can my noble friend say why this training scheme will be abolished? Is he satisfied that EU recruitment figures last year recorded that only 2 per cent of applicants were UK nationals and that, even for stagiaires—internships—France had five times more applicants and Italy nine times more than the UK? Surely we can do better. What are the Government doing to improve the situation?

Lord Bach: My Lords, I agree with my noble friend that it is vital that we have high-flyers in Brussels. We are extremely successful at the top end, but he is right to say that things have not gone as well as we would have liked at the lower end. Our expectations of fast-streamers have changed since the programme was introduced many years ago now, in 1991, and departments—especially since the introduction of PSG—want their fast-streamers to acquire a broad base of experience and not to specialise too narrowly in any one area of their business, such as Europe.
	We have not abolished the training scheme; it has been suspended while the Cabinet Office conducts an internal review to see how we can do better. I agree with my noble friend that we certainly need to do better. There is a need to make joining the EU Civil Service appear more of a positive career move. We are therefore actively engaging with the EU and encouraging it to re-examine its recruitment strategy, but we are also internally investigating ways of improving EU professionalism in the fast stream so that we can continue to defend UK interests.

Lord Wright of Richmond: My Lords, can the Minister tell the House what is being done on language training facilities and recruitment policies for both the Home Civil Service and the Diplomatic Service to meet not only current needs in the Commission for secondments from Britain but also future needs when the External Action Service comes into being?

Lord Bach: My Lords, we put a large emphasis on languages. The system that I am discussing—the concours system—seems alien to many British applicants for a number of reasons, one of which is the requirement to complete a central part of the examination in a second foreign language and to have a third language before one can be promoted above the initial entrance grade. That arguably weights it against mother-tongue English speakers. Therefore, it is crucial that we do more to improve our language training.

Lord Wallace of Saltaire: My Lords, does the Minister recall that the European fast-stream initiative began when the noble Baroness, Lady Thatcher, was Prime Minister? To their credit the Major Conservative Government carried it through precisely to increase the number of high-quality British applicants to the Commission and to provide them with training in the British Civil Service and a return base to the British Civil Service, if that was the way in which their career went. The Labour Government's neglect of the European fast stream in the past few years has been appalling. As the Minister says, it is suspended for a review. Will the Government give a commitment that the European fast stream will be continued and that more people will be encouraged to enter that dimension of the fast stream of the Civil Service?

Lord Bach: My Lords, I should make it absolutely clear that the fast-stream programme has not been abolished; it has been suspended because things have changed. How can we make EU careers more attractive to UK nationals? The relatively low entry grade into the EU Civil Service under the EU Civil Service rules means that UK civil servants with a few years' experience would have to take a retrograde step in seniority and pay. We need to make joining the EU Civil Service appear a more positive career move. That is precisely what the internal review that the Cabinet Office is undertaking is intended to do. The concours for generalist entries are infrequent; they are much more specialist. However, our excellent home civil servants tend to be generalists.

Lord Clinton-Davis: My Lords, does my noble friend realise that this matter is of great urgency? Not only is it important that British civil servants should play their part in the lower echelons of the European Commission, but it is vital that they should be available for recruitment into the cabinets of the Commission—not only of British commissioners but of others, too.

Lord Bach: My Lords, I absolutely agree with my noble friend. We need to move quickly on this. However, I emphasise that at senior level our representation in Europe is among the best, if not the best.

Lord Howell of Guildford: My Lords, is the Minister aware that the European Commission recruitment policy has recently abolished the upper age limit, which may be good news for some people around the place, including some of your Lordships? Will he explain the role of the EU staffing unit in the Foreign and Commonwealth Office—I think that that is where it is located—and how it interrelates with the European Personnel Selection Office? There seems to be overlap between these agencies, which may be the cause of the filtering and delay in relation to the success of our recruitment policy.

Lord Bach: My Lords, the noble Lord makes an interesting point. I shall write to him with a considered answer on the relationship between the two. However, there is concern both internally and as far as the EU recruitment policy is concerned.

Finance: Interest Rates

Lord Roberts of Conwy: asked Her Majesty's Government:
	Whether they will prepare a package of fiscal measures to support any interest rate reductions.

Lord Davies of Oldham: My Lords, the Chancellor will make announcements on fiscal measures at the Budget in the normal way.

Lord Roberts of Conwy: My Lords, may I remind the noble Lord that on 4 February in London the Chancellor of the Exchequer told international bankers what he would do in next month's Budget? He said that he would take measures,
	"to raise growth and to effectively manage our public finances. Fiscal policy will continue to support monetary policy".
	We have had the interest rate cut, small though it be, but, with rising inflation and soaring government debt, how can we have tax cuts to stimulate growth? All the talk is of tax increases in the Budget. Is that not the sure road to recession?

Lord Davies of Oldham: My Lords, the noble Lord is as well informed as ever and therefore knows the answer to the question; the Chancellor made that clear a month or two ago. He will be fulfilling that prediction in the Budget. It will be appreciated that the British economy is established on firm and sound foundations. It is of course the case that there is a great deal of international turbulence at present, and that is why the Financial Stability Forum is so crucial in seeking to produce worldwide stability with regard to finances. Within that framework, the Chancellor will make his decisions clearly known at the time of the Budget.

Lord Newby: My Lords, does the Minister agree that, given the weak state of public finances, the truth is that there is no wriggle room at all for the Chancellor in terms of fiscal stimulus or fiscal anything else, even if he were minded to do that? Have the Government any plans to review the nature and operation of the golden rule which, with the passage of years, looks increasingly unfit for purpose?

Lord Davies of Oldham: My Lords, the golden rule has served this country well and over a decade has provided the outstanding achievements of the British economy. Of course the Government will follow the golden rule. I emphasise that it is supplementary to the work on monetary policy, but the Chancellor does not use fiscal policy to regulate interest rates; the noble Lord is all too well aware of the independence of the Bank of England in that respect.

Lord Forsyth of Drumlean: My Lords, is it not obvious that the Chancellor's spending spree, which has taken the share of GDP spent by the state up to 45 per cent, has resulted in a squeeze on growth and that unless we cut taxes we are going to enter an era of stagflation?

Lord Davies of Oldham: My Lords, the House will recognise that the constraints on growth reflect the changing international position, to which the British economy and the Chancellor acting responsibly will need to respond. There is no doubt that it limits action regarding the Budget, but I maintain the obvious point regarding the fundamentals: that this country still has the highest level of employment of the advanced economies; that this country still has one of the lowest inflation rates; and that this country still has one of the lowest set of interest rates. Of course we appreciate that the world is moving into a period of extreme difficulty for national economies. Fortunately, we are well placed to withstand the challenges that are approaching.

Lord Tomlinson: My Lords, why is my noble friend underselling the situation? Is it not the case, as the Prime Minister—unless my ears deceive me—said at Question Time in another place today, that the public finance figures announced today for January are among the best on record for that month?

Lord Davies of Oldham: My Lords, the Prime Minister did say that. In my earlier answers, I have merely been trying—anticipating that my noble friend might intrude—to follow the same level of modesty that he usually displays on such issues.

Lord Skelmersdale: My Lords, that is all very well, isn't it? But surely to goodness is not the Treasury paying more interest payments on government borrowing than at any time since 1979? I agree with the noble Lord on the Liberal Democrat Benches that there are strong suspicions that in fact the golden rule is in the process of turning to lead.

Lord Davies of Oldham: My Lords, the House is all too well aware of the one feature of the golden rule that is causing short-term difficulty, which is the unanticipated costs regarding the support of Northern Rock. I emphasise again that the Government are consistent in their strategy. Despite the blandishments of the Opposition spokespersons and those on their Back Benches, the Government will not depart from the golden rule and will not try to use fiscal policy to determine the development of the economy in the terms that the noble Lord suggests.

Lord Campbell of Alloway: My Lords, do not the answers to this Question reflect the incompetence—financial incompetence—of this Government?

Lord Davies of Oldham: My Lords, I was hoping to suggest to the House that that might be a minority view.

Lord Harrison: My Lords, on the inexpertise of this Government and, indeed, of the noble Lord, on recessions, would he nevertheless consult with the party opposite, which has a deep and profound knowledge and understanding of them? It faced many during its period of stewardship.

Lord Davies of Oldham: My Lords, during the 1990s the Labour Party and subsequently the Labour Government learned well the lessons of misrule that had occurred under the previous Administration. The past decade has shown how differently we have conducted the economy.

Olympic Games 2012: Legacy

Lord Addington: asked Her Majesty's Government:
	What progress has been made on the planning and accountability for a sporting legacy from the 2012 London Olympic and Paralympic Games in the elite and participatory sectors.

Lord Davies of Oldham: My Lords, good progress is being made to put the infrastructure in place to make the United Kingdom a world-leading sporting nation and to ensure a sporting legacy from the London 2012 Olympic and Paralympic Games. The legacy action plan, due to be published shortly, will report annually on progress towards that aim.

Lord Addington: My Lords, I thank the Minister for that Answer. Are we not rather rich in plans and guidance on the Olympics which cover everything from infrastructure right down to tourist attractions, but which are very low on sport? When are we going to get something that refers to a key part of the legacy, which should be the way that we up participation rates in sport? If the Olympics provide good mood music, it is no good without anywhere to dance.

Lord Davies of Oldham: My Lords, that latter point is certainly so, but the noble Lord will give the Government credit for the £755 million to be invested during the next three years to deliver a world-class system for PE and sport. The great emphasis that the Government are placing upon sport in schools will be appreciated by the House, as will the extent to which Sport England is devoting itself towards producing high-class athletes and improvements in sport generally. Furthermore, the House will have seen the Government's commitment in more general terms to improve the health of the nation by a strategy to deal with obesity. Although that responsibility has been taken away from Sport England so that it can concentrate on sport, it is nevertheless an important dimension for other departments.

Lord Glentoran: My Lords, would the noble Lord agree that this is the last major legacy strategy that has not yet been published? He assures us that it is being thought through. However, the most important matter in which people are interested is that the strategy has not yet been funded and we have no idea how much money the DCMS is likely to put in to motivate young people right across the country to participate in what used to be known in my day on the Sports Council as "sport for all"—which has disappeared in the past few years, unfortunately. Could he ensure that the strategy is published and say what Her Majesty's Government are doing to attempt to reduce bureaucracy in their management of sport, which is costing a fortune to every governing body?

Lord Davies of Oldham: My Lords, excessive bureaucracy regarding sport has a long history and it has always been a difficult issue for Governments to address in reconciling the conflicting sporting bodies. That is why in my original Answer I emphasised the focus of Sport England on the delivery of sport—which it intends to carry out. The noble Lord is right that the legacy action plan in sport has still not been published; it will be in the next two or three months, if not earlier. There is no doubt at all that it is a crucial lynchpin of the legacy that we intend to develop from the Olympic Games and has a crucial role in the build-up to the Olympic Games.

Baroness Harris of Richmond: My Lords, will the legacy action plan suggest what percentage of that vast amount of money, to which the Minister referred, will go to the north of England? I have heard nothing about the planning or the percentage of the money from the Olympic Games that will go to the north of England, where we are completely devoid of any involvement in the Olympics at the moment.

Lord Davies of Oldham: My Lords, I want to emphasise that the investment in Sport England and the sharpening focus of its role is not related to London and the Olympics. It is related to the legacy position, but directed toward improving sporting performance and opportunity across the whole country. The north of England will, of course, expect its fair share of those increased resources which are being devoted to that end. It would not be possible for us to deliver a sporting legacy for the nation if that were concentrated only in the south-east. There is no intention that that should be the case.

Baroness Billingham: My Lords, is it not the case that there are already good indicators that sport is, in general, becoming much more exciting to young people? That is because of the stimulus of the 2012 Olympics, and also because sports' governing bodies now have excellent programmes which they are linking with schools to make thousands of children more aware of their particular sport. That is a very important start. Is it not also the case that a heartening number of people have signed up to the volunteering side of the Olympics? That, too, is something to which we should surely be looking forward.

Lord Davies of Oldham: My Lords, my noble friend is very knowledgeable on these issues. Her last point latched onto the case that, even in advance of the baton of the Olympic Games—the torch—being handed over to London, there is clear evidence of increased interest in sport. That is bound to increase substantially as soon as London takes over from Beijing as the Olympic city.

Lord Mawhinney: My Lords, would the Minister be kind enough to write to me—and to put a copy of his letter in the Library—listing the organisational bodies in sport that have been consulted in preparing this legacy document? I declare an interest as a member of the Football Association board.

Lord Davies of Oldham: My Lords, I will be delighted to give an undertaking to write to the noble Lord on that matter. At this stage, I could not possibly list the bodies, but I will certainly write to him and put a copy in the Library.

Lord Roberts of Llandudno: My Lords, when the Minister mentioned Sport England in his previous reply, he said that the whole country would benefit. What does he mean by "country" in that context?

Lord Davies of Oldham: My Lords, I was referring specifically to Sport England. As the noble Lord will speedily have realised, that applied only to England. As he may recall, his noble friend had asked me about the northern part of the country; I had assumed that to be northern England rather than north Wales. If the noble Lord wishes to address a question to me about what we are doing for sport in Wales, I will be delighted to respond to him positively.

Extradition: United States

Lord Lamont of Lerwick: asked Her Majesty's Government:
	Whether they will reconsider the extradition arrangements with the United States in the light of recent court judgments.

Lord West of Spithead: My Lords, Her Majesty's Government are entirely satisfied with the current extradition arrangements between the United Kingdom and the United States. Recent court judgments have not persuaded us that a change is either necessary or desirable.

Lord Lamont of Lerwick: My Lords, I thank the Minister for that reply. If he is so satisfied with current arrangements, would he care to reflect on the case of Mr Lotfi Raissi, who was the subject of an extradition request from the United States concerning terrorism, was imprisoned in Belmarsh, was found by a British court to have no case to answer and, last week, was judged by the Court of Appeal to be entitled to apply for compensation for wrongful imprisonment? Is he aware that an official of the FBI has said that it applied for the extradition warrant for fishing purposes to see what it could find out about that person? Is it not an indictment of the Government's arrangements, with which he is so satisfied, that a person who was found by a British court to have no case to answer, had he been arrested prior to 2003, would now be languishing in an American prison?

Lord West of Spithead: My Lords, I understand that my right honourable friend the Lord Chancellor and Secretary of State for Justice is studying the judgment on Mr Raissi's application for compensation and considering what action to take in the light of it. It would be very unhelpful and unproductive to speculate—it would be speculation—that a US request on the same facts for Mr Raissi would have succeeded where the earlier one had failed. That is pure speculation and, as the matter is ongoing, I do not intend to comment further on it.

Baroness Hanham: My Lords, in the absence of the Minister being able to respond to that question, does he not agree that it would make the extradition arrangements between the US and the UK more balanced if a judge were allowed to rule that if a significant part of the offence had been carried out in the United Kingdom, any trial should take place in this country and extradition be barred?

Lord West of Spithead: My Lords, it is worth saying that the US is a mature democracy; it has a system based on the Bill of Rights, which came from our Magna Carta; and it is one of many countries that this applies to. It would be bizarre—or should I say perverse?—if we did not demand a prima facie case for places such as Albania, Ukraine and other countries in Europe, but demanded it of the United States. On concurrency of jurisdiction, the Attorney-General has talked with her American counterpart about how that should be taken forward in British courts.

Lord Elton: My Lords, to what extent does the American Bill of Rights extend to Guantanamo Bay and the people there?

Lord West of Spithead: My Lords, my confidence in the US judicial system has been reinforced by the fact that the US Supreme Court has ruled that foreign nationals detained in Guantanamo Bay without charge were entitled to bring legal actions in the US federal civilian courts challenging their captivity. I have been reassured by the US legal system.

Lord Thomas of Gresford: My Lords, is the Minister aware that we on these Benches opposed the US-UK bilateral treaty at every stage on the grounds of its lack of reciprocity? Since then, we have had the case of Mr Alex Stone, a 34 year-old blind man who was extradited to the United States on the say-so of an American enforcement officer and held there in prison for six months for 23 hours a day in a cell, only for the charges to be dropped. Since the United States ratified the treaty in November 2006, how many US citizens have been extradited to this country on the say-so of a British policeman alone?

Lord West of Spithead: My Lords, I fear that I cannot give a precise answer to that. I will have to get back to the noble Lord in writing.

Noble Lords: Oh!

Lord West of Spithead: My Lords, I have been given the answer by the House. I go back to what I said: it would be perverse if we were demanding of the United States something that we did not demand of all the countries of the Council of Europe—countries such as Albania and Ukraine—and countries such as New Zealand and Australia and demanded more of the United States than we did of those countries. All our treaties in this context are bilateral, so that would be extraordinary.

Lord Richard: My Lords, does not my noble friend not think that we should demand from the United States the same as the United States demands from the United Kingdom? Does he not agree that this is one of those difficult issues where the Government may have proceeded in an unwise direction? Perhaps they should look at it again.

Lord West of Spithead: My Lords, I am afraid that I cannot agree with my noble friend. Before the arrangements were changed they were definitely unbalanced in that we were demanding a prima facie case whereas all that was needed from us was probable cause. Therefore I do not think that the arrangements are unbalanced. I think that on the whole they are balanced. Fifty-two people have been extradited from this country since 2004—in four years, 52 people—and 17 people have been moved the other way.

Lord Campbell of Alloway: My Lords, is the noble Lord aware that there is a serious disparity that warrants the attention of Government? It is no use referring it to the Lord Chancellor, who is no longer a Lord Chancellor; it is a matter for Government. Will the Government attend to it?

Lord West of Spithead: My Lords, I believe that he is still the Lord Chancellor. There is balance, and I do not think that the arrangements are unbalanced. They fit in with bilateral agreements we have with about 100 countries.

Lord Campbell-Savours: My Lords, did my noble friend hear the reference by the noble Lord, Lord Lamont, to a fishing expedition being the justification? Is that approach being adopted in other cases and how can we be assured that that is not the case?

Lord West of Spithead: My Lords, I am not aware that there was a fishing expedition. I can certainly look into that to see whether we feel that was the case, and I will come back in writing.

Banking (Special Provisions) Bill

Brought from the Commons in the morning of Wednesday 20 February and printed pursuant to Standing Order 51; read a first time.

London Local Authorities Bill [HL]

Lord Brabazon of Tara: My Lords, I beg to move that this Bill be now read a second time.
	Moved accordingly, and, on Question, Bill read a second time and committed to a Select Committee.

London Local Authorities and Transport for London (No. 2) Bill [HL]

Lord Brabazon of Tara: My Lords, I beg to move that this Bill be now read a second time.
	Moved accordingly, and, on Question, Bill read a second time and committed to a Select Committee.

Business

Baroness Royall of Blaisdon: My Lords, my noble friend Lord West will now repeat a Statement made in another place on earned citizenship. After that, we will come to the Second Reading of the Banking (Special Provisions) Bill. Noble Lords may wish to note that, if Back-Bench contributions were kept within 10 minutes, the House should rise by our normal target rising time of 10 pm. Given the further pressure on business, the Criminal Justice and Immigration Bill will not be further considered in Committee today. The next day for that Committee stage will be Tuesday 26 February.

Citizenship

Lord West of Spithead: My Lords, with the leave of the House I shall now repeat a Statement made in another place by my right honourable friend the Home Secretary. The Statement is as follows:
	"With permission, Mr Speaker, I would like to make a Statement on immigration and the path to British citizenship. I have today laid in the Library of the House copies of the "Earned Citizenship" Green Paper. Britain is a tolerant and fair-minded country. The British public know that carefully managed migration brings great benefits to the United Kingdom: economic, social and cultural. But I also recognise and understand concerns about the impact on local public services of migration. At a time of change, we have responded to the need to control migration to the benefit of Britain and to protect our borders. We have made substantial progress in recent years, and we are seeing the results: record numbers of foreign national prisoners deported last year; fingerprint checks now in place for all visas for those travelling to Britain; and asylum applications now being processed more quickly than ever before. "And this year we are delivering further radical changes to the UK's immigration system. First, we are ensuring that those who come to Britain do so in Britain's interests. The Australian-style points-based system, which goes live at the end of this month, will allow only those whom we need to come to work and study. Secondly, we have strengthened the way in which we police the system and protect our borders. We will soon have systems in place to count people in and out of the country."From 1 April, the new UK Border Agency will bring together the work of the Border and Immigration Agency, UKvisas, and Customs at British ports of entry. Later this year, we will also begin to introduce compulsory ID cards for foreign nationals who wish to stay in the United Kingdom, making it clear whether they are allowed to work and how long they can stay."Building on these measures, today's Green Paper sets out our plans for the third phase of immigration reform—ensuring that the path to British citizenship reinforces our shared values. Today, we are setting out a new deal for citizenship, where the rights and benefits of British citizenship are matched by the responsibilities and contributions we expect of newcomers to the United Kingdom."Our proposals are based on a United Kingdom-wide programme of listening events, which we have conducted over the past five months with the British public. In framing our proposals, we have listened to their views. They were clear about what we should expect of newcomers who choose to come to the United Kingdom and start on the path to citizenship: they should speak English; they should work hard and pay tax; they should obey the law; and they should get involved and contribute to community life. British people want the system to be fair and transparent, and I am clear that progress to citizenship should be earned. "The Green Paper proposes that all migrants coming to the United Kingdom will be admitted as temporary residents. A limited number of categories—highly skilled and skilled workers, those joining family, and those granted our protection—will then be able to become probationary citizens for a limited period. "Probationary citizenship is a new and crucial stage in our immigration system, and will determine whether a migrant can progress to full citizenship or permanent residence. The Green Paper sets out clear expectations of migrants as they move through the stages of this journey. We will expect the vast majority of highly skilled and skilled workers entering under the points-based system to speak English, and we are consulting on whether spouses entering on marriage visas should speak English before arrival. "In order to become a probationary citizen, we will expect everyone to demonstrate English and knowledge of life in the United Kingdom. Refugees who legitimately require our protection will continue to receive their current entitlements. We will continue to expect temporary residents to support themselves without general access to benefits. We now propose to defer full access to benefits and services until migrants have successfully completed the probationary citizenship phase, so they are expected to contribute economically and to support themselves and their dependants until they become British citizens or permanent residents. It is only at this point that they will have full access to our benefits and services."We also expect migrants to obey our laws. As well as deporting record numbers of foreign national prisoners, we will refuse applications to stay or progress for anyone given a prison sentence, so they will be denied access to British citizenship and will lose their right to stay."There should also be consequences for those given non-custodial sentences. We therefore propose that minor offences should slow down progress to the full benefits of citizenship. Such offenders will therefore need to demonstrate compliance with our laws over an extended period to earn the right to progress in the journey to citizenship."I believe that criminality should halt, or slow down, progress on the path to British citizenship, but we should reward those who play a more active role in the community. We will therefore enable people to move more quickly through the system where they have made a positive contribution to British life by, for example, volunteering with a charity."I am today proposing a fund to help local service providers to deal with the impacts on our local communities of rapid changes in population. Money for the fund will come from charging migrants an additional amount on immigration application fees."At a European level, we are making a concerted effort with member states to deal with criminal activity by EEA nationals. We deported 500 EEA nationals last year and we will continue this robust approach by identifying ways to return them more easily to their countries of origin."I can today announce that we are setting up two new units to work across departments on how we work with EU partners to tighten our provisions on criminality and benefits, and we will work closely with employers to ensure that workers can speak the necessary standard of English. "Finally, the Green Paper sets out proposals to simplify and consolidate immigration law, allowing us to increase the efficiency of decision-making, strengthen public confidence in the system and minimise the likelihood of delays and inconsistency in decision-making. Our proposals will make it easier for migrants, decision-makers and the public as a whole to understand the rules and have confidence in their operation."This is a comprehensive package of measures to strengthen our immigration system and to reinforce our shared values. It will deliver a clear journey to British citizenship, which balances rights and benefits with responsibilities and contributions. I commend this Statement to the House".My Lords, that concludes the Statement.

Baroness Hanham: My Lords, I thank the Minister for repeating this Statement made earlier in the other place. The Green Paper deals only with those who are aiming to enter this country legally. It is right that we should lay down as firmly as we can what is expected from those who do, but let us be under no illusion that what we are talking about is the tip of the iceberg as far as foreign nationals and migrants entering this country are concerned. We are setting up a complicated and bureaucratic system for a relatively small proportion of the total number of people who are crossing our borders.
	Let us also be clear that we are talking only of those who seek to come from outside the European Union; the citizens from those 26 countries—regardless of whether they speak English, undertake voluntary service or bring with them their mothers, children, wives, uncles and aunts—are not included. In this Green Paper, we are not considering the refugees who come here for political and safety reasons. This Green Paper addresses not at all the thousands of illegal immigrants who cross our borders every day. Therefore, we are talking about only a proportion of those who will come here legitimately. What proportion of the total is that? If it is limited to only those whom we need to work and study here, under the new points-based system, which is the first part of the three-part system that is being introduced, what is the anticipated number of people we are talking about?
	The participation of people who migrate willingly to this country has always been welcomed. We benefit from it and we enjoy the interchange of cultures and experiences. The extra hurdles now being put in their way, therefore, must be seen to be fair to them, as well as to us. Will the Minister go into a little further detail about the requirements under the probationary period? If this is to be a minimum of one year, what will have to be demonstrated to achieve citizenship within that time? What deficiencies will cause that period to be extended? Who will make the assessment of whether probationary citizenship has been successfully completed? How is the judgment on whether a probationary citizen can speak English and understand life in the United Kingdom to be tested? Presumably, there will be oral and written examinations, but who will undertake them? How will people demonstrate whether community involvement, which will accelerate the journey from temporary to permanent status, has been achieved? Will there be agreed forms of volunteering or community service? How will they be accessed and assessed?
	The Government are intent on refusing the right to stay to those who do not ultimately meet their goals or who are convicted of criminal activity. In view of the very limited number of people currently being removed from this country after committing criminal offences, how realistic is it that deportation will take place? We already know that the Border and Immigration Agency does not deport anybody who has served a sentence of less than two years.
	The Minister has announced that, in order to help with the costs of immigration, a sum will be added to the cost of a visa. The Home Secretary has said that this will raise possibly tens of millions of pounds for local government, but what does that mean? Has a proper estimate been made both of the costs borne by local government and of what will be raised to assist it? The Minister in another place portrayed the leader of the Local Government Association as welcoming this proposal, but my understanding is that he welcomed the theory of it. The estimated £15 million to be raised from this source will, as I think he understands—we certainly do—barely touch the costs incurred. If £15 million is accurate, it would provide less than 10 per cent of the cost to the National Health Service. It certainly would not also cover education, policing and the myriad other local government responsibilities.
	Perhaps the Minister would say what benefits this will bring and, more important, how this money, which is presumably going to be put into some form of ring-fenced trust, is to be distributed. Will it be as part of the grant system? Will it be on demand and, if so, whose voice will speak loudest? Will it be based on increase in population or on increased demand for services? Indeed, how is this rather small amount of money to be allocated?
	Green Papers usually herald a Bill. This will be the seventh immigration Bill that this Government have introduced. Will the Minister confirm that any further legislation would consolidate legislation arising from this Green Paper and the six forerunning Acts of Parliament?
	Finally, I want to raise a point made by my right honourable friend David Davis during the debate in the other place, which was not properly addressed; in the intervening couple of hours, the Minister may have been briefed on it. In most cases, the granting of United Kingdom citizenship, permanent or probationary, will result in the loss of original nationality. Therefore, will any period of probation be a prior condition of citizenship and not a part of it? Under international law, people cannot be made stateless, so even a probationary period could make citizenship permanent. If that were the case, the UK could not revoke that citizenship unless it was absolutely clear that the previous nationality was not lost until full British citizenship was granted. If the Minister is not able to answer that question, perhaps he might give a written reply. It seems to me salient to the whole way in which this is being carried out. I thank the Minister again for introducing the Statement.

Lord Avebury: My Lords, we, too, are grateful to the Minister for repeating the Statement from another place. We are delighted to welcome the renewal of the undertaking to consolidate the law on immigration, as the Statement makes clear. We ask the noble Lord whether that will also cover citizenship. The law on citizenship has not been consolidated since 1981, so it is in almost as much disarray as the law on immigration. It would be useful to know whether the two will be handled together.
	In view of the range and complexity of these proposals, we ask the Government to allow more than the usual 16 weeks of consultation on the Green Paper. Some of the proposals are presented for the first time. During the consultations that led to the Green Paper, which are referred to in the Statement, there was no mention of probationary citizenship. This is a new concept, which has not yet been tried out on the public.
	We deplore the fact that the Government are proposing in a totally unexpected way to increase the fees being charged to people who are already in the country. I do not believe that that was ever foreshadowed. The noble Lord may not remember—I do not think that he was here at the time—but we objected strenuously to the enormous increases imposed on applicants for various services from the immigration authorities, particularly the vast increase that was imposed on people applying for indefinite leave to remain. It means that, from start to finish, we are charging more than any other country for a person coming here and obtaining permanent leave to stay. I sent the noble Lord's predecessor a comparison showing that we are second to none in the enormity of the charges that we impose on potential migrants.
	Like the noble Baroness, we foresee problems arising with the community service requirements, which could entail a massive bureaucracy in authenticating the work that people do under these schemes and in validating the qualification that it gives them to be treated as accelerated applicants for citizenship. We are also concerned about the language test. If it is applied across the board, it will discriminate against older people, who might find it impossible to learn English. If I suddenly had to go and live in Pakistan and I was made to learn Urdu, I think that I might have some difficulties. Does not the noble Lord agree that this requirement should be applied flexibly, with regard to the age of the applicant as well as to his mental ability? There may well be people coming to live here who, for one reason or another, are not as intellectually able to learn languages as others are, so they would never reach the point at which they can pass the language test.
	On the probationary period, we agree that a lot of questions need to be sorted out. For example, presumably the benefits and services for persons granted refugee status will be suspended once their application for asylum has been granted. They will come off National Asylum Support Service support, so what kind of help will they be able to get from the public purse if they are not immediately able to find jobs and contribute to the economy as we hope that they will be able to do in the end? We should have some flexibility in this requirement, because not everyone is immediately able to enter the job market successfully when otherwise they are qualified for leave to remain in this country. Also, how will the acquisition of probationary citizenship affect people whose original nationality, because of a prohibition on dual nationality, does not allow them to obtain another citizenship? Will they lose their original citizenship? Have other states been consulted about how they will treat probationary citizenship when looking at the question of dual nationality?
	I have given the Minister notice of these two questions. First, will he confirm that discrimination against children born abroad to British mothers and foreign fathers is to be removed, as we have attempted to ensure under previous legislation and were finally promised during the proceedings on the UK Borders Bill? Secondly, since both Indian and Nepali law do not allow a person to hold their citizenship if he is a citizen of any other state, will British nationals overseas of Indian and Nepali descent from Hong Kong who have no other citizenship now be entitled to claim full British citizenship?

Lord West of Spithead: My Lords, I thank the noble Baroness, Lady Hanham, and the noble Lord, Lord Avebury, for those pertinent points. First, the noble Baroness said that this is very complicated and bureaucratic, but that it is not the case. We are looking to simplify the process of getting British citizenship and to simplify, as she rightly points out, the 10 Acts since 1971. These proposals should rationalise those, make the process more streamlined and let people understand it more readily. I hope that there will be administrative savings, although I have been scarred in the past by people promising administrative savings and not producing them. In theory, this should work; it will simplify things and, therefore, there jolly well should be savings.
	On the numbers coming into the country, this is the third stage of immigration reform. The noble Baroness is right that in the Green Paper we are not looking in detail at stopping people getting in or at tightening border security. The first phase is to look at who is coming in and to give them tiered categories—skilled, unskilled or whatever—as well as to look at the visitor routes. The second phase of immigration reform is to tighten up border security with things such as e-borders, the border force and counting people out and in. The first two will resolve the issues relating to illegals that the noble Baroness rightly refers to.
	This is, of course, a Green Paper and it focuses on clarifying the paths to citizenship. It is interesting that, when we went round to talk to the British public, it came over strongly that they want people in this country who are going to be British citizens to speak English, to contribute to the economy and pay tax, and to obey the law of the land, which is why criminality will slow down the journey. The public also want them to join in in the British way of life. What we have done in the Green Paper has reflected that and looked at a sensible and pragmatic way of achieving it.
	The noble Baroness asked who will make the judgment about English tests, knowledge of life and those things. We will use the existing system for that. It is already a requirement for people settling here; these proposals will just amplify that and slightly streamline the system. We are proposing that a referee will authenticate active citizenship and we are seeking views—that is part of issuing a Green Paper—on the precise activities and the level of contribution. Clearly, that will need debate and we will have to think about what areas would count and would help someone to become an active citizen and more a part of the British way of life.
	The fund was referred to. Figures have been bandied around but they are meaningless at the moment because we are still looking at the amount of money that would be charged when people get a visa and what that would mean for the total money collected. What sorts of thing are we are looking to spend money on? For example, recently Kent needed the help of Norfolk in getting someone who spoke a particular language and could give advice. The method of payment for such a police officer causes aggravation. That is the sort of thing that would be paid for and that we are looking at covering from this figure—it is on that level. However, the details will have to be beaten out over the next weeks.
	On the probationary period for British citizenship, the one-year minimum relates to those who have gone through active citizenship and had an assessment. We could squeeze the limit down to that but, normally, it would be a three-year period. Those are the timings that we are looking at. What proportion of migration is legal? I will write to the noble Baroness with the precise details because I do not have the figures at my fingertips.
	The noble Lord, Lord Avebury, asked whether the use of English would discriminate against the old. It is not only the old; I would find it difficult to learn Urdu. He is right. We will apply this policy flexibly—it is a part of the ongoing debate—because it would be wrong to demand from some people a level of English that it is impossible for them to achieve.
	On the issue of nationality, which was raised by both the noble Baroness and the noble Lord, perhaps I may come back in a written reply to give the exact details of how the policy will apply during the probationary period. It is correct to say that we must make absolutely certain that we do not end up with someone having no nationality at all. EEA citizens who want to remain in this country but do not want to become British citizens, or others who do not want to because they are not allowed to hold dual nationality, can become permanent residents. They will spend a three-year period as a probationary citizen and then they will move on and become a permanent resident rather than a British citizen. That is how that will be done.
	The noble Lord, Lord Avebury, asked about the position of the children of British mothers. During the passage of the UK Borders Bill we recognised that the children of British mothers are not currently entitled to the same rights to enter and remain in the United Kingdom as those of British fathers. At that time we committed to addressing this problem in a simplification Bill that, because of its wider scope, would allow us to provide an avenue to citizenship rather than just a right of abode. The simplification Bill will be published in draft form in the summer to allow for pre-legislative scrutiny. I hope that that answers that question. The noble Lord's second question about people of Indian and Nepali descent is extremely complicated and perhaps I may write to him with details of those issues.
	I hope that I have answered most of the questions. As I say, the way in which we are going is very much a simplification. It will make the system easier for people to understand. This is the third stage of our immigration reforms, which will make a huge difference this year when they are all in place. It chimes with the British population, who have quite clearly said that they are interested in having these things in place.

Lord Jopling: My Lords, is the Minister aware of the present situation whereby, in many cases, immigrant authorities in the United Kingdom keep a record of people who are admitted here on a temporary basis but no record is kept of whether or when they leave? What does this new policy do to close this gaping hole?

Lord West of Spithead: My Lords, as I said, the Green Paper looks at the path to citizenship. Closing the gaping hole, as the noble Lord puts it, is a border security aspect. E-borders will achieve this. There has been a gaping hole because we have not monitored who has gone out. However, for the first time ever, not only will we monitor exactly who comes into the country but, with e-borders, we will monitor who has gone out. So we will have a very clear idea of who is coming in and going out. I shall be very glad of that not only on the immigration side but in my counterterrorist role as well. So that is how that will be achieved.

Lord Hylton: My Lords, I welcome the intention of the Green Paper to provide us with a better and clearer system for the future. I also welcome what the Statement says about the reunion of close family members of those already entitled to live here. There remain serious concerns about the past and what has happened up to now, in particular in regard to the backlog of asylum application cases. Can the Minister say what progress is being made in processing these and what backlog of cases will still remain to be dealt with? As regards past unsuccessful asylum applications, what is the situation in regard to destitution among these people? In cases where an asylum application has failed but it is not possible to return the person to their country of origin, will the Government ensure that reasonable access to healthcare is available to these people? Is progress being made in dealing with overstayers, who may well be visitors or students? Finally, there is considerable concern on a point mentioned in the Statement about those who wish to progress towards citizenship but who have been convicted of some minor offence which only entails a very short term of imprisonment for possibly a technical offence. Can the noble Lord say that these people will not be totally ruled out?

Lord West of Spithead: My Lords, I thank the noble Lord, Lord Hylton, for those points. As regards the legacy of asylum cases, the back cases, about 900 caseworkers are now dedicated to the task of looking at these. By the end of November 2007, when we got the last full whack of figures, we had concluded 52,000 cases, including dependents. Of those cases, 16,000 have led to removals, including enforced removals, voluntary returns and assisted voluntary returns; 17,000 have been closed for other reasons—for example, they have been discovered to be duplicates or errors; and 19,000 have been granted. As regards failed asylum seekers and healthcare, our intention is that they should be able to use the National Health Service.
	As regards criminal offences, it will depend on what the offence is. Clearly if it is a serious offence, asylum seekers should not have the opportunity to become British citizens, which is a great privilege. We jolly well should not let them. If it is a minor offence, depending on exactly what that offence is—and it is going to be part of the Green Paper debate—it might slow the process down because we want those people to realise what it means to be subject to British law. So it will depend on the level of offence and exactly what the offence is. The detail of that will have to be worked through as this Green Paper is worked up and we move towards further legislation.

Lord Waddington: My Lords, the third paragraph of the Statement says:
	"At a time of change, we have responded to the need to control migration".
	Does that mean that after years of virtual abandonment of immigration control, the Government are now going to try to get a grip on the situation? It might have been helpful had there been a few figures in the Statement. According to the Office for National Statistics, by 2031 the population of this country will have risen to 71 million, 70 per cent of that rise being a direct result of recent immigration. That will add to the population the equivalent of 11 new cities the size of Birmingham. Unless new immigration is stemmed, again according to the Office for National Statistics, by 2081 there will be 81 million human beings on our tiny island. Do not those figures show a vital and urgent need to re-establish proper control? And is it not very important for the public to know the true position of how vast immigration has been in recent years and what that will mean for the population of this country a very few years from now?

Lord West of Spithead: My Lords, the noble Lord, Lord Waddington, has raised some interesting points. It is interesting to note that the stock of foreign-born people in the United Kingdom is 5.8 million, which is 10 per cent of the current population. That is the position at the moment; I am not aware of the other figures in those predictions, and I cannot say whether they are correct.
	Again, the Green Paper clarifies the path to citizenship. It does not look specifically at stemming immigration. This is the third stage of immigration reform on which the Government have embarked. The first is looking at things like the visitor routes and applying tiers to the exact level of people required. There is no doubt that, overall, immigrants to the United Kingdom add to our economic well-being and have helped us in this country, but immigration puts pressure on some local services at times. The second phase, I say again, is border security, which will put pressure on illegal immigration. This Green Paper, however, purely looks at the route to citizenship itself.

Lord Soley: My Lords, I hope my noble friend will take into account that this is an important step. After many years, including under the previous Government and indeed under the previous speaker who was a Minister and did not distinguish himself in dealing with immigration control or reform, we now have a structure that is beginning to differentiate between those coming in for asylum reasons and those coming in who want to live and settle here. For the first time, both logic and humanity are driving this policy, not racial stereotyping or assumptions about asylum seekers and refugees. The Minister is to be congratulated on this.

Lord West of Spithead: My Lords, I thank my noble friend. I agree that that is what we hope to achieve with the Green Paper as we move towards legislation. Historically, going back 30 years or more, there have been knee-jerk reactions at times to the whole issue of asylum seekers. Now we are getting a balanced way forward on tackling that issue and how it affects the United Kingdom.

Baroness Falkner of Margravine: My Lords, I concur with what the Minister said about border controls and counterterrorism. That will be an important step, I am sure.
	The Green Paper is rather ambiguous about non-EU nationals and the right of EU nationals to bring in third-country partners. What would the situation be if, hypothetically, a German national had permanent residency here but then wished to bring in a spouse or partner from outside the European Union?
	I welcome the fact that the Green Paper strongly recognises that people should earn their way into such citizenship entitlements as taking up employment. Will that logic be followed through in allowing asylum seekers to take on more employment than they are currently allowed to?

Lord West of Spithead: My Lords, I thank the noble Baroness, Lady Falkner, for those points. I am not exactly sure if a German national in this country who is in the probationary period and hoping to become a permanent resident is allowed to bring in a non-EU partner. I will respond on that in writing if I may, because I am not clear in my own mind whether that is the case.
	I hope that the position regarding asylum seekers will be developed during consultation on the Green Paper. All of us would like to think that they can become a useful part of the community. There was a reference earlier to exactly what citizenship means—I apologise to the noble Lord, Lord Avebury, for not answering that question. My noble and learned friend Lord Goldsmith will be reporting on that very issue in March, which gives sufficient time for it to be taken into account in the Green Paper consultation. It would be good if this could all be gathered up in any legislation that is required. As I have said, I hope that we will knock on the head the 10 different Bills that have existed since 1971 and simplify the issue, making it a little more straightforward and giving a sensible way forward in this tiny world by tackling this really big issue that worries our population.

Lord Elystan-Morgan: My Lords, I invite the noble Lord, Lord West, to return to the disqualification which visits a person who has served a sentence of imprisonment. In reply to my noble friend Lord Hylton, the Minister referred to imprisonment or the commission of a serious offence. Which yardstick is to be relevant? The Statement refers only to the fact of a prison sentence. Does that mean that a person sentenced even to a few days of imprisonment would fall foul of this provision? If so, in my respectful submission, that would be unjust and unreasonable, and would fail the sublimely reasonable test of WS Gilbert of making the punishment fit the crime.

Lord West of Spithead: My Lords, I thank the noble Lord, Lord Elystan-Morgan, for that point. The intention is that we are talking about imprisonment for periods of about 12 months. We will have to debate this in the Green Paper discussion. The intention is not that someone who has committed a much lesser offence should be barred completely from becoming a British citizen, but that it should be delayed. This will delay the time when he can do that because he has broken the law. Becoming a British citizen is not a right; it is a huge privilege. It should be a great privilege to be a British citizen. Therefore, we are going to make clear to people that that is the case.

Baroness Carnegy of Lour: My Lords, immigration and citizenship are not devolved to Scotland. They are a reserved matter. Quite rightly, the Green Paper is a United Kingdom Green Paper. The Minister said that the Green Paper is a result of consultation. Opinions differ about immigration in different parts of the United Kingdom. Could he tell us how the consultation was carried out in Scotland and whether there was a difference of opinion coming through on this matter?

Lord West of Spithead: My Lords, the noble Baroness, Lady Carnegy, has stumped me on that, because I do not know exactly what the answer is. It is an important point and it is absolutely correct that one does get different feedback from different areas of the country. Perhaps I can come back in writing to answer that specific question.

Lord Roberts of Llandudno: My Lords, at various times many people in overseas countries are suffering from persecution—let us just think of the time of Idi Amin. People who do not speak English will need to find shelter somewhere. How flexible is the Government's regulation regarding this? Are there certain circumstances where such people will be able to disregard these particular regulations? Also, how can those asylum seekers, who have perhaps finished their time with the National Asylum Support Scheme, support themselves in the three years probation before they are granted citizenship?

Lord West of Spithead: My Lords, the noble Lord, Lord Roberts, raises an important issue about refugees and asylum seekers. The rules will be as they are now. We will still take people into this country on exactly the same basis. If something like, God forfend, the situation in Uganda cropped up again, those people would be taken in on that basis. They would come here and would apply to become asylum seekers. I am sure, in the way that we have always done as a nation, that we would take people in who are in that dreadful situation. As regards supporting themselves in that probationary period—as I have mentioned in answer to a couple of other questions—this has to be looked at in the context of the Green Paper. It is important that we enable them to swing across and become useful members of our society before becoming British citizens thereafter.

Lord Brooke of Sutton Mandeville: My Lords, the Statement refers in two different places to the record number of foreign national prisoners who were deported last year. What was the figure and by how much did it exceed the figure below it and closest to it in previous years?

Lord West of Spithead: My Lords, the figure that the Prime Minister said he hoped to reach was 4,000 and in fact it was 4,200.

Lord Morris of Handsworth: My Lords, the Minister will be aware that immigration and migration are two sides of the same coin. In the light of the figures offered to your Lordships' House by the noble Lord, Lord Waddington, could the Minister tell us what has been the net figure of immigration to the United Kingdom over the past two or three years?

Lord West of Spithead: My Lords, I thank my noble friend Lord Morris for that question. In 2006, the total international migration inflow was 591,000—I am trying to do some quick maths here—and the outflow was 400,000. So the answer is 191,000.

Banking (Special Provisions) Bill

Lord Davies of Oldham: My Lords, I beg to move that this Bill be now read a second time.
	In the Chancellor's Statement which I repeated in this House on Monday I set out the reasoning behind the Bill. Let me at the outset remind noble Lords why it is being introduced. It is a general Bill. However, it is being introduced now only because the powers it contains are necessary to take Northern Rock into a period of temporary public ownership. As I said on Monday, it is important for savers and depositors to be reassured that their money remains safe and secure. Northern Rock will continue to operate as a bank on a commercial basis. It has been open for business as usual since Monday. The Government guarantee arrangements which the Chancellor announced last year remain in place and will continue to do so.
	Let me also remind the House that, last September, there was almost universal agreement that the Government were right to intervene to save this bank to stop its problems spreading into the wider banking system. There is also agreement that the bank's long-term future must lie ultimately in the private sector. Even those who advocated nationalisation in the autumn did so on the basis that it could be only a temporary step—a stepping stone to return it to the private sector when market conditions made that possible.
	Throughout last autumn, and from the start of this year, the Government wanted to test all the options and to give the shareholders and the management time to find a solution which was acceptable and met the three principles that we set out last year: to support financial stability, to protect depositors' money, and to protect the interests of the taxpayer.
	The Government made it clear throughout that all options, including a temporary period of public ownership, remained on the table. The Government had two private sector bids to consider. Each of them was tested against the option of a temporary period of public ownership to see which met our objectives and decision principles, including the best value for the taxpayer. Both proposals involved a degree of risk for taxpayers and very significant implicit subsidy from the Treasury, involving a payment below the market rate to the Government for continuation of their guarantee arrangements and for the financing which we would be putting in place. A subsidy on the scale required would not provide best value for the taxpayer. The private sector rather than the taxpayer would secure the vast majority of the value created over the period ahead. That would be a poor reflection of the balance of risk borne by the two sides.
	By contrast, under public ownership the taxpayer will secure the entire proceeds from the future sale of the business in return for bearing the risk in this period of market uncertainty. We have therefore made the decision we have to protect taxpayers, after having weighed up all the various competing considerations. In deciding which option was best for the taxpayer, it was clear that a temporary period of public ownership was the better option.
	The Chancellor has appointed Ron Sandler as the chief executive for Northern Rock. The new board and the bank will operate at arm's length from the Government with commercial autonomy for their decisions. The Chancellor has said that he will publish shortly the framework agreement which will outline how the relationship between the Government and Northern Rock will work.

Lord Forsyth of Drumlean: My Lords, I apologise to the Minister for interrupting. I have read the debate in the other place thoroughly, but there was no mention from the Chancellor about what happened to the bid from Lloyds-TSB in the earlier part of the summer which, had it been accepted, would have avoided the run on the bank. Can the Minister say why that bid fell through? It is widely believed in the City that Lloyds was prepared to take over the bank on the basis of a loan facility being made available at a commercial rate of interest. Why did that original private sector alternative fall through? Why was it rejected?

Lord Davies of Oldham: My Lords, full consideration was given to that proposal. It did not meet all the Government's requirements and that is why it was turned down. We are entering temporary public ownership because we have rejected bids that had undergone much longer consideration than the Lloyds proposal, which was never a firm proposal put to the Government but an outline of what might be possible. We have rejected firm bids that had involved considerable work and expenditure because they did not meet the needs of the taxpayer. The Government have borne that consideration in mind throughout. Of course, we wanted to make sure that the problems with Northern Rock did not increase financial instability, which was a danger, but at the same time any action that we took had to meet the obvious requirement of safeguarding the interests of the taxpayer.
	The House will recognise that this Bill is being introduced in exceptional circumstances. We have introduced this legislation only because the Government need to take Northern Rock into temporary public ownership. I think the House will understand that it is in everyone's interest for that to happen as quickly as possible. That will avoid any uncertainty or unnecessary delay that could destabilise the bank, allow customers and staff to know where they stand and give Ron Sandler the certainty that he needs to develop his business strategy for Northern Rock and to ensure that business can continue as usual and that value is protected. However, the House must, of course, have the opportunity to debate this legislation in detail and to provide scrutiny and that is why we are considering Second Reading today. The Committee stage and other stages of the Bill will be taken tomorrow.
	I believe that the arrangements strike the right balance between the need to resolve the position of Northern Rock as quickly as possible and the need for proper parliamentary scrutiny. The Bill has been deliberately drafted so that banks or building societies could be acquired only in very special circumstances. The power to acquire them will last only 12 months. These powers are not intended to anticipate the longer term reforms on which the Government are currently consulting; rather they will in time be replaced by provisions in the proposed banking reform Bill that will seek to achieve broadly similar ends. In the mean time they provide additional scope for action, if it is needed.
	As is customary at Second Reading I shall outline the crucial elements of the Bill. But first I draw the House's attention to issues that have arisen in recent days, not least at yesterday evening's helpful meeting with Peers when a number of issues were identified. First, I shall address Granite, Northern Rock's securitisation programme; secondly, the legislation as it relates to building societies; thirdly, give my initial reaction to the important report of the Delegated Powers Committee of this House, which we received only today; and, fourthly, deal with concerns about the impact of Northern Rock on other banks and reassure noble Lords about the competitive impact of this.
	Questions have been raised about Granite, Northern Rock's securitisation programme. It may be helpful if I clarify the key facts about this structure. Granite is a special purpose vehicle, a trust, whose sole purpose has been to provide Northern Rock with a cost effective form of financing for its business. Northern Rock sold mortgages to Granite and used the proceeds to fund its business. The Granite vehicle funded the purchase of these mortgages by issuing bonds in the capital markets. This kind of structure is a common feature for many high street banks and building societies. No new mortgage assets have been transferred to Granite since the Bank of England started providing ongoing financial support to Northern Rock.
	Secondly, as the Chief Secretary to the Treasury made clear during the Second Reading debate in the other place, Granite is an independent legal entity owned by its shareholders. Northern Rock has no shares in Granite. Granite and Granite only is liable to its bondholders under any scenario. There would be no benefit to the taxpayer in seeking to bring Granite into public ownership. The existence of Granite is no barrier to the onward sale of Northern Rock.
	Thirdly, contrary to some suggestions, the Financial Services Authority advises that Northern Rock's mortgage book is of good quality and its assets exceed its liabilities. The Government's loan and guarantee arrangements are secured against the high-quality assets on Northern Rock's balance sheet to which Granite and its bondholders have no access. The Government have not provided any guarantee arrangements for Granite bondholders.
	Fourthly, it is a matter for the new management team to assess their commercial relationship with Granite going forward and to decide whether they wish to maintain the arrangement or let it run off in an orderly way to be replaced by alternative funding sources. This decision would ultimately have no impact on the taxpayers' exposure.
	Finally, Granite is a privately-owned company. Her Majesty's Revenue and Customs has a legal obligation to maintain taxpayer confidentiality. Therefore, it will be appreciated that I am unable to offer comment on the tax affairs of named individuals or organisations. I appreciate that the House has sought further details of Granite's structure, which are set out in the attached technical note.

Lord Barnett: My Lords, I wonder whether my noble friend will allow me to intervene. In the last published statement of the report and accounts of Northern Rock, published last January, there is a reference by the chief executive in his report to total securitisation of £40.2 billion. Does Granite have any charge on the assets of Northern Rock before the Bank of England's charge?

Lord Davies of Oldham: My Lords, first, I emphasise that this issue regarding Granite was raised in the other place yesterday. The Chancellor of the Exchequer has written to the Liberal Democrats about the whole position regarding Granite, and he has put a copy of that letter in the Library so that we can all see exactly that position. My noble friend will recognise that I have rather a great deal to deliver in my speech, and I am conscious of the time constraints, so I hope that my noble friend will accept that reply.

Lord Higgins: My Lords, the noble Lord said at the beginning of his remarks on Granite that its sole purpose was to raise money for Northern Rock. Is it true that it was in fact set up as a charitable trust that was supposed to help disabled children? That is alleged, and I know not whether it is true. Perhaps the noble Lord could confirm that. Secondly, is it true that the audited accounts of Northern Rock included the Granite assets?

Lord Davies of Oldham: My Lords, as I have indicated, there is a letter in the Library that spells out all the aspects regarding Granite, but I will emphasise the most significant point that the noble Lord has addressed and which is of concern. Granite has no claim on the assets of Northern Rock. What we are dealing with in this Bill is the position of Northern Rock, with Granite being entirely separate from that situation. As I have indicated, the assets of Northern Rock are greater than the liabilities incurred by the taxpayer. I realise that I am foreshortening—

Lord Marlesford: My Lords, before the noble Lord leaves the world of mineralogy, could he tell us about another SIV which I understand is part of Northern Rock; Dolomite?

Lord Davies of Oldham: My Lords, as this speech is going to take quite a long time, I might be able to answer that question by the time I get to the end. At the moment I cannot reply to the noble Lord. He will have to show a degree of patience.

Lord Newby: My Lords, I am sorry to interrupt the noble Lord but he referred to a letter which allegedly has been sent to the Liberal Democrats. As I am about to speak in this debate, it would be extremely helpful if this letter could be produced, because it is no use putting in the Library a letter of which I am unaware or sending it to someone else when we are having a debate here and now. Could he, one of his colleagues or an official possibly bring a copy into the House while the debate is going on?

Lord Davies of Oldham: My Lords, that seems an entirely reasonable request. When I indicated that the letter had been sent to the Liberal Democrats, I must say that the name of the noble Lord, Lord Newby, was the first that sprung to mind. If he has not received it, then of course I will take the most urgent steps to ensure that he does. I realise the urgency of that.

Lord Higgins: My Lords, I apologise for persisting, but is it true, as was alleged, that the Granite assets appeared in the accounts of Northern Rock?

Lord Davies of Oldham: My Lords, I cannot answer that question directly, but I have given the noble Lord a clear indication that the Government are dealing with Northern Rock; they are not dealing with Granite, which is entirely separate from Northern Rock and has no claim at all on the assets of Northern Rock. I cannot go further than that and I intend if I may, with the leave of the House—

Earl Ferrers: My Lords, this is actually quite important, because my noble friend said in his question that Granite appears as an asset of Northern Rock. He wanted to know whether or not that is the case. I can see that the noble Lord has difficulty and has referred to a letter that he wrote which was placed in the Library but which no one seems to have received. Perhaps it might be a good idea to suspend the debate while people get sight of that letter, if it is so important.

Lord Davies of Oldham: My Lords, I am taking steps to remedy the position with regard to the letter, I hope in very good time. I hope that the noble Earl will recognise that we have a fairly lengthy debate ahead of us. I am giving assurances that this debate and this Bill revolve around the institution, as far as the immediate issues are concerned, of Northern Rock, and Granite has no claim on its assets. We are dealing with Northern Rock and its assets—that is the issue of exposure to the taxpayer. Everything that we debate on this Bill will revolve around those issues.
	Other issues have been raised. Concern has been expressed that the Bill provides powers to deal not just with Northern Rock but with building societies, which, as noble Lords know, are subject to a very different legislative regime from that for banks. We are seeking powers in the Bill to modify building societies legislation to facilitate the giving of certain financial assistance by the Bank of England to building societies, just as the Government can for banks. Those provisions are in Clause 11. The Chancellor has been clear throughout that although we have no current plans to apply the Bill to other institutions, at present we lack the powers to act effectively if a building society were to run into difficulties. This clause represents sensible contingency planning.
	Another feature, which I indicated a few moments ago, is the report from the Delegated Powers Committee, whose reports are taken with justifiable seriousness by the House and the Government. It was only a short while before I came into the Chamber that I was able to read the report. It is an important committee; the House respects its work and its report is a serious one. It is critical in ensuring that powers to introduce laws through delegated powers, which generally do not get as much scrutiny in this House as other legislation, are appropriate. That is the work of the committee. I want to inform the House that I have read the report and that we believe that there is a case for being able to move quickly by making orders and regulations using the negative procedure—which is what we propose in the legislation. But we have just received the report and I give this undertaking—that we will consider the recommendations very carefully and, of course, act accordingly.
	A fourth issue about which concern has been expressed is that Northern Rock will be able to compete unfairly with other banks in the retail savings and banking market. Let me assure the House that this will not be so: we will not approve a business plan that would provide for unfair competition. The bank is, of course, in receipt of public support. As the House knows, that aid is subject to EU state aid restrictions. Clearly, interpretation of these laws is a matter for the European Commission, but I would be surprised if the Commission interpreted these rules in such a way as to allow a bank to expand its business aggressively on the back of public support. That is a clear, important and reasonable constraint on the business plan that Northern Rock will develop. As I have explained, we intend to submit a restructuring aid plan to the Commission shortly, which will need to reassure it that Northern Rock does not abuse its position.

Lord Naseby: My Lords, the Minister says that this bank may not expand its business, yet it has 20 per cent of the mortgage market. Having done that, it has found itself bankrupt. Now, the constraint in going to Europe is that that is post-event. What worries the rest of the banking sector and the building society movement is that this bank will continue to trade as it does today: with the highest ISA rate of interest and the highest deposit banking rate in the market, thereby pinching business away from the open market with government funds—the taxpayers' funds.

Lord Davies of Oldham: My Lords, all of those facts will be clear to the European Commission. It is also the case that our own competitive authorities have a direct interest in this matter, and I want to assure the House that the Government will not approve a business plan from Northern Rock—and nor will one be submitted—unless it meets the obvious constraints that I have outlined, with Northern Rock not taking advantage of a privileged competitive position.
	In addition, I want to emphasise—

Lord Campbell of Alloway: My Lords, that is not, as I hope that the noble Lord will agree, what the Government will approve. What my noble friend just said is relevant to whether there has been a fundamental distortion of competition within a financial service in this country. It is not a precedent for the Government to give an assurance; this is a matter for the Commission and for the European Court of Justice. There will be, if it so finds, fines and orders for compensation; those will all have to be paid, not by the Government but by the taxpayer.

Lord Davies of Oldham: Well, my Lords, it is clear that the future position of Northern Rock will be subject to the judgment of the European Commission, as the noble Lord has indicated, and that of our own competition authorities. Let me add a further dimension: the Chancellor has asked officials to have urgent meetings and discussions with the British Bankers' Association—

Baroness Kingsmill: My Lords, I know from my personal capacity that the European Commission is looking at this deal very closely and with a particular view to ensuring that the state aid rules are enforced to avoid any unfair competition. We also have a powerful and strong financial services sector here, which is also watching like a hawk. It will be among the first to raise complaints if it sees any likelihood of any risk to competition. Speaking as a former competition regulator, I see no risk or harm to competition in these arrangements. I reassure the House that the state aid rules will make it very certain that there will be no possibility of any unfair competition by these arrangements.

Lord Davies of Oldham: My Lords, the House will appreciate the authority with which my noble friend speaks on this matter. She greatly reinforces my humble attempt to identify the importance of the European Commission's position. I also emphasise that our own competition laws are not negligible. I am grateful to my noble friend. My third point is that we are asking officials to have urgent meetings and discussion with the British Bankers' Association, the Building Societies Association and others to reassure them on that position.
	Even if all those factors were not the case, I could offer three further points of reassurance. First, Ron Sandler has already made it clear that he is acutely aware of competition issues and has no intention of running the bank in a way that abuses its present, temporary state ownership. Secondly, the clear strategic aim that we have set for the management is to move the bank off all forms of government support, including government guarantees, as rapidly as possible. The bank's business plan, which must be agreed with the Government, needs to be directed towards that aim. A business plan built on abusing the present temporary government support, which in turn reflects the present distorted state of financial markets, would clearly not be consistent with the aims that we have set out for the management, because it would not be sustainable.
	Finally, let me reassure the House about how the financing of Northern Rock will operate. At present, Northern Rock is subject to the same interest rate premium arrangements and is paying for government guarantees in precisely the same way as it paid for those facilities in the private sector. It has not had overnight access to a different source of financing. In future, financing arrangements and fee arrangements for guarantees will need to be put in place that are consistent with the business plan and the requirements of the European Union. It is too early to speculate sensibly on what those may be but, clearly, we expect to be able to demonstrate both to competitors and to the European Union that the bank is operating in a way that does not distort the market.
	After 26 minutes, I am now about to fulfil the normal obligations of Second Reading by going through clause by clause what the Bill entails, but such is the insight of the House and knowledge about these matters that some of that may be otiose. Suffice it to say that I want to reinforce the points I made at the beginning. The Bill is a general Bill, but it is brought in as an emergency measure to deal with the particular circumstances of Northern Rock. The provisions regarding state powers have a limited duration: they are subject to a sunset clause of 12 months. I also emphasise to the House that on Monday night, the Government placed in the House drafts of two orders that we propose to make quickly after the passing of the Bill. The first provides for Northern Rock to be taken into public ownership; the other provides a scheme to determine the amount of compensation, if any, that is payable by the Treasury to those whose shares were transferred or whose rights were extinguished by the transfer order.

Viscount Bledisloe: My Lords, the noble Lord referred, albeit fleetingly, to the sunset clause. Why should not the period of the sunset clause be a great deal shorter—say, one or two months? Is he worried that if it was so shortened, the fact that this is in reality a Hybrid Bill dressed up as a Public Bill would become too apparent?

Lord Davies of Oldham: No, my Lords, it is not that. As I said as a background to the Bill, we intend to introduce legislation that will produce reform for the banking and building society sectors and all deposit-takers. It will take us some months to do that. We are working on the proposals; they will of course be put before this House and the other place in due course. We cannot guarantee to have that as an Act of Parliament in the short term. In the mean time, such is the general financial situation and all noble Lords will recognise the strains and stresses that are happening across the international financial community and the extent to which other countries are facing problems with regard to institutions in great difficulty that it is necessary for the Government to have legislation in place that enables us to act appropriately and rightly when that is a threat to the financial system and the interests of the nation. I commend the Bill to the House.
	Moved, That the Bill be now read a second time.—(Lord Davies of Oldham.)

Lord Lawson of Blaby: My Lords, the whole House has the greatest sympathy for the Minister for the manifest embarrassment that the shambles of this Bill has landed him in. Nevertheless, I must say at the beginning that it is deplorable that the very important issue of Granite, which is an offshore securitisation vehicle that holds the better half of the Northern Rock assets and which is not part of the nationalisation process at all, has many complicated and questionable aspects. Although this was raised in another place in yesterday's debate, so we should have been fully informed about it this morning—well in time for this debate—we did not receive the document until the debate had already begun and I have not had the opportunity to read it and study it fully. It is not acceptable. When he winds up, I hope that the Minister will be able to give the House a fuller statement of the position.
	I see that the Chancellor states in his letter:
	"No new mortgage assets have been transferred to Granite since the Bank of England started providing ongoing financial support to Northern Rock".
	That is not enough. We need an assurance that no further mortgage assets will be transferred to Granite henceforth and that that will not cause any legal complications for the process that we are debating.
	The best thing I can say about the Bill is that it is only the second worst solution to the problem with which the Government have been grappling. The worst would clearly have been to have given public subsidies, however hidden, to Mr Branson or any of the other bidders with whom they were flirting and whom they desperately wished to get to the altar. At least he has not done that.
	I speak with some experience. I think I am the only person taking part in this debate who has had experience, as Chancellor of the Exchequer, of dealing with a bank failure. That was the case of Johnson Matthey Bankers in 1984, which, I may say, was handled slightly better. Of course it was a simpler matter but it was of sufficient gravity for the Bank of England to consider that it posed a systemic threat, which is why something had to be done. After a few days of attempting to get a private sector rescue it was clear that a genuine private sector rescue was not possible and I authorised the Bank of England—the authorities, as we used to call it in those days—to take it over there and then. The Bank of England did so to run Johnson Matthey down in an orderly manner and to clear up the mess, which was satisfactorily done.
	One of the curious things was that the word "nationalisation" was never once voiced at that time: not in the House of Commons, not here, so far as I am aware, and not in the media. There were two reasons for that: first, it was all done so swiftly, and, secondly, there is a great distinction between the act of the state taking over a failed bank in order to run it down in an orderly way and the state running a continuing business pretending that it is a commercial business, in competition with genuine commercial businesses. That is the great distinction.

Lord Eatwell: My Lords, will the noble Lord confirm that, in the case of Johnson Matthey, there was but one shareholder; there were no retail deposits; and, when the bank was finally wound up, there was a loss of many millions of pounds to the public purse?

Lord Lawson of Blaby: My Lords, I explained that that case was simpler. In fact, however, there was no loss to the public purse whatever. Not one penny was lost to the public purse as a result of the Johnson Matthey operation. This is what should be done on this occasion.
	I am sorry to have to say this, but there is absolutely no public interest whatever in perpetuating the existence of the Northern Rock bank. It is not as though we in this country are short of mortgage-lending institutions. It is not as though there is any strategic national interest in maintaining one more mortgage-lending institution. There are, however, grave risks in keeping it going. There is greater exposure of the taxpayer, there is the problem of unfair competition, and there is the continuing reputational difficulty which the United Kingdom has suffered as a result of perpetuating the existence of this failed bank. Clearly the Government should be saying, "This bank will undertake no new business. The existing mortgage book will be managed, and when the financial markets improve in time, as they will, the loan book can be sold off piecemeal at a proper price and in an orderly way to private sector buyers". That is what should be done. Far from protecting the taxpayer, as the Government are pretending they are doing, they are causing great risk to the taxpayer.
	Why are the Government doing this very foolish thing? I am afraid that it is difficult to think of any explanation other than the political one: that the Government are sensitive about feelings in the north-east. It is right to be sensitive about feelings in the north-east, but it is not right that these feelings—these rather grubby political feelings, if I may say so in the politest possible way—should over-ride all the other considerations about how the operation following a bank failure should be conducted.
	Incidentally, I see from the Chancellor's letter, which I have only just read—I think that the Minister said this in his opening remarks—that,
	"the FSA advises that Northern Rock's mortgage book is of good quality and its assets exceed its liabilities".
	I shall make just two observations about that. First, the Financial Services Authority's record in this matter does not engender great respect and belief. Secondly, even if that is so at the present time, it is well known that if there were to be any further decline in the housing market, Northern Rock would be at greater risk than any other bank or lending institution. The Minister's complacency is therefore unwarranted.
	Let us look to the future. How will we best avoid this sort of shambles, which has been extremely damaging to the United Kingdom as a financial centre? We clearly need to strengthen banking supervision. That is what I sought to do, as the noble Lord, Lord Eatwell, will remember, in the Banking Act 1987 following the Johnson Matthey debacle. I reflected long and hard and brought forward that Act, which considerably strengthened banking supervision.
	What has happened since then? This Government, notably in the person of the then Chancellor of the Exchequer, Mr Gordon Brown, have successively weakened banking supervision in this country. The first thing he did was to take the responsibility for banking supervision from the Bank of England and give it to the Financial Services Authority. I suppose he must have thought that financial regulation and bank supervision are the same. They could not be more different. That has been a disaster. We know now—it has been established—that the FSA was asleep on the job; moreover—certainly until a few days ago—if you go to the Financial Services Authority's website and click on "What we do", you will see not a single mention of banking supervision. It is scarcely aware that it is doing it. It is certainly very low down its priorities. That is not the way to enhance banking supervision.
	In addition, in the 1987 Act, because banking supervision needed to be strengthened, I set up the Board of Banking Supervision, statutorily, and imposed it on the Bank of England. Initially, the Bank of England was not terribly happy about that, but the noble Lord, Lord Kingsdown, who was the Governor of the Bank of England at the time, accepted that banking supervision needed to be enhanced and that it would be helped by the injection of real expertise. When I set up the Board of Banking Supervision, it was chaired by the governor and had two other senior Bank of England representatives on it. But I also put on it the most experienced, most respected and most market-savvy former bankers—from both commercial and investment banking, that I could find—and they did a very good job.
	What did Mr Brown do about the Board of Banking Supervision? He did two things. In 1998, he removed the Governor of the Bank of England and the other Bank of England representatives, which did not seem to be very sensible. But that was not enough for him. In 2001, he abolished the Board of Banking Supervision altogether. That is not how to have effective banking supervision in this country. This Government have set up more boards, committees and commissions on this, that and the other than any previous Government. It has abolished just one board—the Board of Banking Supervision. No wonder we are in the mess that we are in now.
	The reputation of this country as a financial centre has been gravely damaged by this situation, which the Minister would do well to admit. Perhaps I may put two questions to him, and I hope that he will pay attention to this. First, what were the auditors of Northern Rock up to? After all, it is about to be owned by we the people and, very shortly, we will have a right to know what the auditors were up to. Did the auditors warn Northern Rock of the irresponsible policy and irresponsible business strategy that it was pursuing? Did they warn Northern Rock that it should at least—if it was to be funded 80 per cent from the wholesale markets—insure that risk, as Countrywide did in the United States? Did the board reject that?
	Because I was very concerned about auditors and regulators, in the 1987 Act, I gave auditors an indemnification from any claim for damages if they gave information to the bank supervisors which the supervisors required. Did that happen? There would have been no problem, because I had given them that indemnity. Did they do that? If the auditors did not do that, were they negligent? If they were negligent, perhaps they should be sued. In the case of Johnson Matthey, the Bank of England sued their auditors for a substantial sum of money and won. Perhaps the taxpayer could get at least a little bit back that way. I would like to know what the Minister has to say about that.
	My second and final question concerns the shareholders. Will the Minister give an undertaking—despite what he says, it is not at all clear—that the assets will prove sufficient to allow the taxpayer to get his or her money back? Whatever independent valuation is put on the shares now, will he give a firm undertaking that the shareholders, who must be at the end of the queue, will not receive a penny until the taxpayers have received everything due to them? If not, that would be the greatest imaginable scandal.
	The reputation of the financial services sector, this country's biggest industry, has been gravely damaged by what has been done, but it is so strong that its reputation will recover. The Government's reputation has also suffered gravely; I do not believe that it will recover.

Lord Newby: My Lords, I sometimes sense, when listening to debates in your Lordships' House, that noble Lords have had so long to prepare their speeches that, by the time those speeches come to be delivered, they have lost some of their freshness. There is no danger of overpreparedness in our speeches today.
	I suspect that there are a number of things on which most, if not all, of us agree. First, Northern Rock's management was increasingly reckless and its policies led directly to the bank's downfall. Secondly, the FSA was complacent and dilatory in the first half of 2007 in the way in which it attempted to regulate Northern Rock. Thirdly, when the storm broke, the tripartite system proved incapable of acting quickly and decisively enough. Fourthly, the process of finding a buyer and of arriving at a resolution of the Northern Rock crisis was too long drawn out and the initial process was unsuccessful. Where we clearly disagree is over whether—and, if so, when—Northern Rock should have been nationalised. However, the die on this is now cast. We should spend much of today discussing not the history but the future of the bank.
	Noble Lords know that on these Benches we have been advocating nationalisation for over three months. Why? Not for any ideological reasons. We have done so because we believed that it was inevitable and the least worst of a number of unattractive options. I am sure that a number of noble Lords will rehearse this afternoon the argument in principle against any form of nationalisation on ideological grounds. It is difficult to overstate the difference between the case for this nationalisation and the ideological arguments advanced for nationalisation a generation ago. However, a Northern Rock small shareholder told me yesterday that he had been called by an old left-wing friend, who had said triumphantly, "I have always been in favour of nationalising the 200 major monopolies—only 199 to go". I suspect that he will have a long wait before he makes another call.
	Until last night, I thought that the key issue that we would be exploring today would be exactly what nationalisation would mean to Northern Rock. What has become clear in the discussions that we have already had, however, is that there is a prior question: what is the Northern Rock that is being nationalised? This is what the discussion about Granite is all about. I am grateful to the Government for having written to my colleague Vince Cable and for letting me have the letter, albeit rather belatedly. For noble Lords who have not had a copy of the letter, the noble Lord, Lord Davies, quoted extensively from it and the technical note in his introductory speech. The letter says little in addition to that, except for one or two points, which I will come to in a second.
	It is worth repeating, or attempting to clarify, exactly what Granite does. Northern Rock raised much of the finance that it needed to expand and issue its mortgages through the Granite procedure. More than £40 billion was raised in this way. That £40 billion was consolidated on to the Northern Rock books. I have here the annual accounts for 2005-06, which show that £40.225 billion of Granite securitisation is on the books of Northern Rock, so it cannot be wished away as though it has no relevance to the asset base of Northern Rock. However, as has been made clear, the Granite companies are not legally part of Northern Rock. They are owned by a charitable trust established by Northern Rock for the supposed but not actual benefit of the Down's Syndrome North East Association (UK) and any other charities that the company could select. The Government's technical note makes it clear that:
	"The trust does not undertake any charitable activities because its property is limited to the shares".
	My question for the Minister is this: is the Down's Syndrome North East Association aware that it has such a leading role in this drama and did it ever occur to Northern Rock, as it was making a substantial amount of money by using the name of this very small charity, to make any payments to it? If so, do the Government think that that can be justified? Finally, on the charity, is the Minister aware of the position taken by the Charity Commission on the names of charities being taken, as far as I can see, almost completely in vain by commercial entities in order to make significantly greater profits than if the charities were not involved?
	It is clear that Northern Rock considered that it controlled the Granite companies, even though they were legally distinct. It included them in its audited accounts, which was extremely misleading; it claimed as its own assets that in effect it did not have. In doing so, it represented that some of its best mortgages were available for it to use to grant security when they already belonged to a separate legal entity, with the security on them already being wholly pledged to other people. The figures that have been used in many of the debates on Northern Rock have assumed that the full assets listed in the balance sheet were at the disposal of Northern Rock, but we know that almost half of them were not and, worse, they were the best half.
	Can the Minister tell us what the Government now intend to do in respect of the Granite group of companies? One logical step would be to bring the Granite entities into the ownership and under the explicit control of Northern Rock over a period of time because only then would the benefit of those assets become available to the taxpayer. Can he tell us whether that can be done and, if so, over what timescale it might technically be possible to achieve? Have the Government asked Mr Sandler to follow such a course of action? The Granite situation is a new issue and has led to a lot of misleading comment about the true status of Northern Rock. It is also something that the Government have yet to get to grips with.
	The key question beyond that is what Northern Rock is going to look like and how it is going to behave. There are a number of options. One that I suspect we can all agree on is that Northern Rock should not attempt to carry on in the way that it has in the past. We on these Benches have repeated almost to the point of nausea the issue of together mortgages, under which people can borrow 125 per cent of the value of the house against which they are getting a mortgage. It was always claimed by supporters of Northern Rock that lots of other people did this. I was pleased that yesterday Alliance & Leicester, which was doing something similar, announced that it would stop. I hope very much that Northern Rock will also stop and that, if Ron Sandler has not already been told this, the Government will now issue that instruction.
	Other problems that arise with the current practices of Northern Rock are exemplified in a letter published in today's Independent under the heading, "The wonderful world of Northern Rock". I hope that noble Lords will not mind if I read this brief letter:
	"Sir, does the Government have any idea of what it is getting into with the Alice in Wonderland world that is Northern Rock? We have a mortgage with the bank that is fixed at 4.99 per cent until 2016. We can borrow back money we have already paid at the same interest rate.
	Taking up an offer on the bank's website today, we can lend that same money back to Northern Rock at an interest rate of 6.35 per cent. Our savings will be guaranteed in full by the Government and we could pocket the 1.36 percentage point profit at no risk.
	Without spending a penny of our own money, we could join what must be a fast-growing line of depositors who could milk Northern Rock and the Government dry".
	Have the Government issued instructions on that kind of practice, which Northern Rock has been and is still, at least until today, undertaking? We can agree that that kind of reckless activity is unacceptable.
	The other end of the spectrum of how we might deal with Northern Rock was set out by the noble Lord, Lord Lawson. You would stop the bank taking any new business and run it down over a period. That route has a number of attractions. It is clearly the easiest in some ways and it limits risk in a number of others. Obviously, it avoids any possibility of falling foul of EU and competition legislation. It is quite a tempting offer.
	The third way is the one that the Government have adopted. They envisage the bank seeking new business but on a more prudent basis. On balance, I think that I favour that option, partly because I suspect that the taxpayer will get his money back only if Northern Rock can do profitable business on the basis of new business and partly because I have sympathy with the argument that Northern Rock is a significant regional institution, although I accept that that cannot be the main preoccupation. The route set out by noble Lord, Lord Lawson, would mean significant staff cuts very quickly and no prospect of any future. While I am not misty eyed about Northern Rock being the embodiment of the north-east, the bank deserves, under new management, a chance to go forward as a going concern. I believe that that is the option that the Government are pursuing.

Lord Forsyth of Drumlean: My Lords, I am not clear what the noble Lord is saying. On the one hand he is saying that the bank should operate at arm's length on a commercial basis but not compete too hard. On the other hand he is saying that the Government should direct the levels of interest for deposit placers and the rest. Which is it? The noble Lord, Lord Newby, and his party are going to vote for the Bill. Surely we should have clarity about the kind of Northern Rock that the noble Lord sees operating as a nationalised concern and about the business plan.

Lord Newby: The bank will operate at arm's length on issues such as the detail of interest rates and repossession policy. I am recommending that the Government give a general instruction to Ron Sandler to look closely at the existing rates and other practices of Northern Rock that were and are reckless. I am not suggesting that the Chancellor sits down with his calculator and tries to work out exactly what every individual interest rate should be.
	Our attitude towards the Bill and the amendments before your Lordships' House in general is that although we have supported and do support nationalisation, and despite the tight timetable, this House should exercise its normal function in submitting the Bill to detailed scrutiny and in making amendments where they are required. The Government have set aside the princely time of an hour in the House of Commons tomorrow to consider amendments from your Lordships' House, so they clearly contemplate that there may be some. Indeed, I suspect that, unless the Government make quite a number of concessions, that will be the case.
	Broadly speaking, we have either tabled amendments or will be supporting amendments tabled by the Conservatives that seek to strengthen the accountability of the Government and Northern Rock, as appropriate, to Parliament. Our amendments call for an immediate independent audit of Northern Rock so that we can get greater clarity of what we are taking on. We propose a regular report to Parliament on the progress that Northern Rock makes against its business plan. We are seeking an explicit provision that Northern Rock—and, indeed, any bank or building society covered by the Bill—should be managed in a prudent manner. We hope that other noble Lords will support these amendments. We also propose to support Conservative amendments that require the Treasury to lay before Parliament, in effect, the business plan of Northern Rock to bring it within the scope of the freedom of information legislation. We will also support amendments that require the OFT to report to Parliament on whether Northern Rock is operating in a competitive manner.
	On the questions raised by the Delegated Powers and Regulatory Reform Committee, our initial view was that we would support the Government on the negative resolution procedure. However, having had a quick look at that view, I think that the basis on which the Government proposed it was not factually correct, so we may need to revise our opinion on that.
	We contemplate supporting the Bill more in sorrow than in anger. We have been alarmed at some of the dealings of Northern Rock and the way in which the Government have attempted to introduce this legislation and some of its provisions. Tomorrow we will table amendments and vote for them unless the Government, in their wisdom, accept them in advance of our needing to do so.

Lord Lang of Monkton: My Lords, nothing better characterises the drift, muddle and fudge of the Government's economic and fiscal policy than this Bill. It is being rushed through both Houses as a panic measure after five months of dithering, during which the delay has done great damage to the high reputation of our financial services industry. This House—the upper House in our cherished bicameral parliamentary system—has endured a number of casual and ill-considered constitutional attacks in the past 10 years by a Government who get cross when they do not get their way. Even they have acknowledged in the past that our House does have importance as a revising Chamber. Yet this surprisingly complex and potentially wide-ranging Bill, shrouded as it is in secrecy and in unanswered questions, has been rushed through another place in all its stages in one day and we are expected to bow and send it back, preferably unamended, tomorrow.
	My first question to the Minister is: why? Are the Government trying to convey an image of dynamic resolution and purpose? Or do they just want to get the issue off the agenda and hope that it will soon be forgotten? I fear that on both counts they will be sadly disappointed.
	Of all the phrases used in recent days, the concept of "business as usual" and managing Northern Rock "at arm's length" are the most inappropriate. The Government are nationalising it precisely because they want to control its future performance. Indeed, ownership imposes obligations. So, if they take ownership on behalf of taxpayers, they take on an obligation to pursue the taxpayers' interests. "Business as usual" is impossible when that has happened and where the bank is uniquely protected by government guarantees; when more than £100 billion of taxpayers' resources are tied up in it; and where shareholders will be litigating and other banks and EU regulators will be watching for any commercial move of any kind that might be seen to exploit its nationalised status and disadvantage its competitors. So it cannot compete; it will have to downsize; it will have to run down its mortgage book; and the Government want to reduce its exposure. In that situation, it seems to me that there can only be a fire sale of assets.
	Perhaps the Minister will tell the House when he replies to the debate how the Government propose to present this commitment of taxpayers' funds in the public accounts, as public expenditure roars above 40 per cent of GDP and the Prime Minister's golden rules are broken again. Will they change the rules? Will they announce a new cycle? Will they treat the matter as an off-balance sheet item? Perhaps the Prime Minister, when he next goes to watch Raith Rovers, will take note of the fact that it is the players who move around the pitch and not the goalposts.
	Nationalisation is not only wrong in principle, it is an unnatural solution in a commercial context such as this. It can be justified only in order to unwind as quickly as possible the truly massive commitment that the Chancellor has made on our behalf of more than £100 billion—more, by a large margin, than the total cost of every past nationalisation in our history, of steel, shipbuilding, coal, the motor industry and so on—and all for one not very large regional bank.
	It is right, I believe, to try to protect the interests of depositors, but nationalisation can only be understood here as a political act. It may save some jobs, but even if half the jobs are saved, the cost of £36 million per job seems a little on the high side. Socialism may have been roundly defeated in the battle of ideas, but clearly the old instinct lingers on in the bloodstream of Labour—the atavistic desire to control, to intervene, to centralise, to direct, to take into public ownership by big, high-spending government. We now see the concept of nationalisation mutating. We see a reversal of past experience. Then they nationalised the core heavy industries and, in Anthony Crosland's immortal words, made them as efficient as the Co-op. Now they set out to seize the commanding depths of the economy—temporarily, of course, like Mr Pitt's income tax—and promise not to hold it in perpetuity for the workers but to return it soon, restored and reinvigorated, to the capitalist world of free enterprise. I find that all a little hard to believe and a little counterintuitive.
	When disaster struck last autumn, the Government claimed that Northern Rock's problems flowed from the American sub-prime mortgage crisis and the resultant credit crunch. There is some truth in that, but the underlying cause of the problem is, I submit, home-grown. It lies in the bloated housing market that the Government have encouraged for political reasons within the bloated macroeconomy that they have created—an economy floating on a toxic mixture of deficits and debt. With a budget deficit of 3 per cent of GDP and a current account deficit of nearly 6 per cent at the top of the cycle and with no fiscal reserve, we are immensely vulnerable to any downturn. If public borrowing is now heading for £40 billion, the private debt has been encouraged to follow the public example. The savings ratio has plunged and the household sector is breaking borrowing records at more than 100 per cent of GDP. It is not just Northern Rock's borrowing policy that got it into trouble but its lending policy as well. Though it may be the worst case, too many lenders have been encouraged to lend money to house buyers on too easy terms; 100 per cent mortgages, even 125 per cent mortgages, we are told. And on what multiple of earnings? Five times, seven times or even more. With self-certification, buy-to-let, equity withdrawal, everyone gets a coconut. The housing market is a central part of the overall danger that our economy now faces. Where have the watchdogs been while this has gone on? They were triangulated 10 years ago with responsibilities split three ways. Everyone gets a whistle so nobody blows a whistle.
	Against that background, Northern Rock's collapse was an accident waiting to happen, but where in the Treasury, if not in Government, has been the voice of authority and of sanity? Are they all so pulverised by a decade of political fudge and media spin that the fundamental principles of economic and fiscal integrity have been lost? In years to come, the history of the past few years will provide a textbook on how not to manage an economy as it approaches the top of a maturing economic cycle. It is in that context that we have to see the failure of Northern Rock. This Bill seeks to impose a political solution to part of a deep-rooted macroeconomic problem that should have been seen and tackled years ago. As such, it will fail and the blame will belong not in America but at Nos. 10 and 11 Downing Street.

Lord Trimble: My Lords, the Minister, like the Prime Minister earlier today at Prime Minister's Questions, reiterated that when the run started on Northern Rock last autumn the Government had to act to maintain stability, as if that somehow absolved them from all responsibility for the situation that had arisen. I think it is important, despite the understandable views expressed by the noble Lord, Lord Newby, to look back a little bit at the history of this.
	At the time of the run, it was quite clear that there had been two failures. The first was the failure of the business model being pursued by Northern Rock itself. I think that is generally understood, and I do not want to dwell on it. The second was the failure of the regulatory structure that had been put in place by the Government—indeed, by Gordon Brown himself. That structure had failed to spot that a weak business model was being operated by Northern Rock.
	The point was made earlier in this debate that we do not know the full story of what happened in the run-up to the crisis with regard to the one attempt at rescue that we know about, from Lloyds TSB. We do not know the full details of that, and the Government have not been frank about it. We do not know what other efforts were made, nor to what extent it was known by the regulators that there was a problem or indeed whether they took any other initiative. Those are all important questions that we ought to know about and about which the Government ought to have been frank. Had it been possible to head this problem off and arrange a rescue before the crash, that would have been highly preferable to the situation that has now arisen.
	In criticising the regulatory model, I am not relying purely on hindsight. I would like to point out that last August we stated, in a paper entitled Freeing Britain to Compete:
	"We are concerned about the division of responsibility between the FSA and the Bank over banking and market regulation. Fortunately, conditions in the last decade have been benign internationally, with no serious threats to banking liquidity. We think it would be safer if the Bank of England had responsibility for solvency regulation of UK-based banks, as well as having an overall duty to keep the system solvent. Otherwise, there could be dangerous delays if a banking crisis did hit, with information having to be exchanged between the two regulators; and there might be gaps in each regulator's view of the banking sector at a crucial time, when early regulatory action might have spared a worse problem".
	That is a good analysis of what proceeded to happen only a short time thereafter, so it is not only with hindsight that we say that it was clearly a bad regulatory model. The simple fact is that from the time that Gordon Brown put the regulatory scheme in place until that summer, it had not faced any test. Last autumn was the first test of that regulatory structure, and it failed.
	Last autumn was a long time ago, and we are still stuck with that failed structure. I know the Government are consulting on other measures, but is it really wise, in view of the dangers that exist in the present economic climate which the Government themselves have adverted to, for us to have just gone on drifting along since last September, thinking that we had plenty of time to consult and to bring forward provisions for a new regulatory structure? I do not think that is the case.
	After the run, however, I suggest it was obvious that there had been another failure: that of Northern Rock itself. Whatever may be said about the bank's asset base—and I will come back to that in a moment—it is clear that after the run there was no one seeking to buy. If there was a high-quality mortgage book of considerable value in the possession of Northern Rock, why was no one prepared to buy that valuable asset? The absence of buyers tends to point one towards the conclusion that there was not an asset of value to be bought. Two bids came in, which the Government spent months examining, but the less said about those two bidders, the better. It was obvious from the start that they offered a poor deal to the taxpayer, and that could have been sorted out very quickly. I note what my noble friend Lord Lawson has said with regard to the experience with Johnson Matthey Bank; that it was obvious to the Treasury within a matter of days that a decent bid was not forthcoming and so it acted. It was obvious to every commentator who looked at the bids coming forward that they were not of value to the taxpayer. One was surprised simply because it went on as long as it did.
	My noble friend has dealt with the way that an attempt has been made to suggest that this problem was not home-grown and has occurred elsewhere. I noticed yesterday in the other place that Mr Dobson in his speech listed all the crises there had been elsewhere, such as Citigroup in the United States having a $24 billion problem regarding its sub-prime losses and Merrill Lynch losing $22 billion. He went through various French, German and Swiss companies, all of which had losses of billions of pounds. The interesting thing about all those cases in those four different countries is that in every case the company in question managed to refinance itself and managed to get itself into a position to continue business without a collapse and without a run. Uniquely of them all, we in the United Kingdom had a run on our bank, and now that failed business is about to be acquired by the Government.
	I note what I thought were some very sensible comments in another place yesterday. The Minister will be glad to know I am quoting from a member of the Labour Party speaking yesterday, Mr Mark Todd. He said,
	"We do not know the company's asset base ... We know neither the assets thoroughly enough to decide whether we are buying what we are told is as good as any mortgage lending business in the land, nor the liabilities we are taking on ... I have dealt with business acquisitions and I would expect to know a great deal more about a business that I was acquiring than the information that we have been offered to date".—[Official Report, Commons, 19/2/08; col. 218.]
	I would be quite happy to adopt those terms used by the Labour Member yesterday.
	Then we have got the confusion created by this SIV called Granite. This was news to me and, I am sure, to most Members of the House. It came into the discussion, the first time I noticed any reference to it, in the debate in the other place yesterday. We have had this paper circulated very belatedly by the Government today. The first question one has to ask about Granite is: when did the Government know about it? If Granite was known about some time ago, why was it not mentioned?
	There are questions about Granite itself. Like other Members, I have only had a chance over the past hour or so to look at this paper. I look at the technical note and I see that it says that Northern Rock has sold around half of its mortgage assets to Granite. Commentators tell us that it is the better half. Whichever half it is, better half or poor half, it is half of its assets—presumably half by value. It also says,
	"Northern Rock receives full value for the sale of mortgages to Granite".
	So the value of the mortgages that are transferred to Granite has already come in, presumably as cash, to Northern Rock. Those mortgages are owned by Granite and must, therefore, be available to Granite in order to meet the bonds that Granite is issuing. But, the technical note also goes on to say,
	"The contractual structure of Granite is such that it is effectively controlled by Northern Rock as it continues"—
	presumably "it" is Northern Rock—
	"to service the mortgages in Granite and to provide cash management and other administrative services. This is absolutely standard for a structure of this kind and it is why Granite is consolidated on the Northern Rock Group's balance sheet".
	This is the answer to the question which my noble friend asked earlier in this debate. The assets of Granite are on Northern Rock's balance sheet. But Northern Rock has already received full value for those mortgages. There is something here that does not add up. The word that leaps to my mind is Enron. I hope it is not appropriate in these circumstances, but I do hope that when we get to the wind-ups the Minister can proceed with this in some greater detail.
	The Minister says it is going to be business as usual. There is talk of the bank being at arm's length from government. I think that it is absolutely impossible for it to be business as usual. Business as usual for Northern Rock, up until now, has been the 125 per cent mortgages and the deposits being paid at 6.5 per cent at the top of the market. This is the failed business model which is still continuing. Obviously, we have to move away from this. We hope that business as usual does not mean the continuation of the failed business model. It must mean something else, but what is it going to be?
	The question was asked repeatedly in the other place yesterday whether the bank will be built up or run down. If it going to be built up, will it be done on the back of subsidies from government? One hopes not. On that, one is left relying on the European Union to keep the Government honest. I am not very comfortable having to rely on the European Union, but on this particular issue I would have to say that it is probably the best assurance for keeping the Government's virtue intact. But even if there is no subsidy, we have here a business that can now operate without fear of failure. It does not have to worry whether it is taking a risk: it is owned by the Government and it has the taxpayer behind it. That is bound to have an effect on how it approaches its business. I cannot see how it can, as has been said, operate as usual.
	What should have happened? At the early stage, as happened in the United States and in euro land, more liquidity should have been made available to the markets, before the crisis struck at Northern Rock. We appear not to have done so. When the crisis struck and it became necessary to provide some assistance to maintain stability, it should have been made clear to Northern Rock that the help was being made available only to enable it to find alternative private sector money and, if it was not able to do so, that it would have to sell off the mortgages and run off its business book to meet the repayments. That is what should have happened, and it is what should happen if we have a problem of this nature again.
	Part of the reason for referring back to the past is to make it clear that, as we can see in this case, if problems of this nature are not tackled immediately, they get worse. It is happening in this case and it is likely to continue to happen. The Government now feel that they have to take public ownership. But ever since this problem arose, neither the Prime Minister nor the Chancellor have given the impression, to me or to many others as well, that they have any real grasp of the situation or understanding of what they are dealing with. At every stage they have made the wrong call and they have ended up with what is the worst, or next to worst, possible situation. The Government are about to run a bank. They are the owners and they will have to take some responsibility for running it. One can only hope that they run it better than the other companies they have run, but I do not have much confidence about that.

Lord Goodhart: My Lords, I am speaking in my capacity as chairman of the Delegated Powers Committee and only in that capacity. It is not normal practice for the chairman of the Delegated Powers Committee to speak in debates on matters on which the committee has reported, but the committee's reports are usually published in time for Members of your Lordships' House to study them carefully before we get to the Committee stage of a Bill. That is not possible in this case. We received copies of the Bill and the Treasury memorandum yesterday. The committee met at 10.30 this morning. Our report was published a couple of hours ago and is now available in the Printed Paper Office, though very few noble Lords will have had time to look at it. I was therefore authorised by the committee to speak in order to inform your Lordships of our conclusions and our reasons for reaching them.
	With one exception, which I will come to later, we were satisfied that all the delegated powers were appropriate. What deeply concerned us, however, was that all the powers in the Bill will require only the negative resolution procedure. The exercise of a power to nationalise banks or take over their assets will, particularly in the case of major banks such as Northern Rock, be extremely important and in all probability extremely controversial, as in this case it plainly is. Your Lordships' House, and I imagine also the House of Commons, would normally expect to enjoy a level of scrutiny provided by the affirmative procedure for any order exercising those powers. Under the Bill as it now stands, however, they do not get that.
	The Government's reasoning for this is set out in paragraph 23 of the memorandum sent to the Delegated Powers Committee, which states:
	"The negative resolution procedure is considered most appropriate for orders under clause 3. Any initial order transferring the securities of a deposit-taker is likely to need to be made urgently, at short notice, possibly within days ... A requirement for each House to approve a draft order would cause a delay (particularly where Parliament was in recess, for example) which would undermine legal certainty and the confidence of consumers and the markets and could create, or impact adversely on, existing financial instability. Any form of affirmative procedure, for example a requirement for a resolution within 28 days of the order being made, risks uncertainty during that period as to the effectiveness of the transfer or other provision. The serious practical, legal and economic consequences ... of being required to unwind a transfer as complex as that of a deposit-taker where a 28-day order is not subsequently affirmed strongly militates against the use of such a procedure".
	That sounds very convincing. However, the memorandum completely misunderstands the position. In fact, the affirmative resolution procedure would normally be much quicker in getting certainty. If a draft order is laid before Parliament, the Government, with their control of the timetable, can get the order debated and approved unconditionally on the next working day. If the negative resolution procedure is used, the order, when it is made, has hanging over it for 40 working days the possibility of annulment. The annulment of an order would not undo what has already been done so it would not give full effect to the wishes of Parliament but would cause confusion and possibly chaos.
	The difficulties envisaged in the Treasury memorandum can indeed be overcome. One difficulty is that in your Lordships' House an affirmative resolution order, but not a negative resolution order, is subject to a hybridity procedure, which would delay its approval. That is not given as a reason by the Treasury in its memorandum but it may well be in its mind. However, it would be simple—and has been done on a number of occasions—to amend the Bill to include in it a provision that orders made under it shall not be treated as hybrid orders, even if they technically are. Indeed, the noble Lord, Lord De Mauley, has already put down an amendment to that effect.
	Another possible cause of delay is that under Standing Order No. 73 of your Lordships' House no Motion to approve an affirmative instrument can be moved until it has been reported on by the Joint Committee on Statutory Instruments, and has been laid before the House. But in the case of urgency, Standing Order No. 73 can be, and has been, suspended. More difficult problems arise if the urgent action needs to be taken during a recess. That is in practice likely to arise only during the Summer Recess. There are two ways of dealing with that. One is by making use of the power under Clause 14 to make retrospective orders backdated to the date on which the Treasury declared its intention to make the order. For example, it could be used if the Chancellor of the Exchequer published a draft order on Friday, backdated it to that date and obtained the approval of both Houses on the draft early next week. Alternatively, this problem could be dealt with by inserting into the Bill a power to make an affirmative order having immediate effect, if it is strictly necessary to do so, but lapsing after 28 days unless it has been approved by both Houses. This would be no worse than making a negative order which would remain subject to annulment for 40 days. The committee concluded that the problems of delay are at least as bad, and in many circumstances worse, under the negative procedure than under the affirmative procedure, and that the possible urgency of order-making is not a ground for deciding which procedure should be used.
	Let me express the views of the committee on the specific powers in the light of that conclusion. We had no hesitation in concluding that orders made under Clauses 3, 4 and 6 should be made by the affirmative process. We also believe that provision for compensation provided by orders under Clauses 5 and 7 are likely to be contentious and need a level of scrutiny provided by the affirmative procedures.
	Clause 11(1) is the only provision in the Bill where we do not think that delegation is appropriate. Clause 11(1) is extremely wide:
	"The Treasury may by order make such modifications of any enactment as they consider appropriate for or in connection with facilitating the provision of relevant financial assistance by the Bank of England to building societies".
	It is so wide as to say that it is in effect what is usually described as a skeleton power.
	Clause 11(3) provides a non-exhaustive list of provisions under the Building Societies Act 1986 that can be modified. Clause 11 is discussed in paragraphs 60 to 64 of the memorandum, which is printed as an annexe to our report. Paragraph 62 states:
	"The Treasury intends to make an order under that power as soon as possible".
	It must be aware what the terms of that order are going to be. There should therefore be no difficulty in replacing Clauses 11(1) and Clause 11(3) with a single provision giving exhaustive power to modify the Building Societies Act 1986 or any other statutes that will need alteration for the purposes of the proposed new order.
	The width of Clause 11(1) is neither necessary nor appropriate. As I said, in effect it is a skeleton power to create new legislation with none of the detail provided for powers under Clauses 3 and 6. Any consequential amendment of the statute not listed in Clause 11 could be made under the power to make consequential amendments under Clause 12. Even if the alteration just suggested is made, the affirmative procedure here is necessary. This is a very important power whose exercise plainly needs the affirmative procedure. I note that the powers under Clause 11 are not limited to 12 months, unlike those in Clauses 3 and 6, because no sunset clause applies to Clause 11.
	Finally, there is Clause 12. So far as it creates powers to modify or disapply provisions in primary legislation, these are in effect Henry VIII powers and should in accordance with usual practice be subject to the affirmative procedure.
	There is nothing in the recommendations of the Delegated Powers Committee, except to that extent in relation to Clause 11, which will reduce the powers of the Government to make orders. What our recommendations will do is increase the ability of both Houses to scrutinise the orders properly, and it is plainly desirable that that should happen. The Treasury's objection to the use of the affirmative procedure is, as I said earlier, based on a misunderstanding of how that system works. I hope that the Government will accept our report and will table amendments that will make that the procedure under the Bill. I have noted that there is already an objection to Clause 11 standing part and amendments have been tabled to Clause 13, which go somewhat further than the committee's report.
	I express the thanks of the committee to our Clerk and legal advisers for their remarkable work, which was done under great time constraints.

Lord Marland: My Lords, I declare an interest as a financial backer of the management team bid, which I do not disagree with the noble Lord, Lord Lawson, is the worst option. Prior to supporting the management team, I explored whether I, with a bunch of partners, would make an offer for Northern Rock, but it was apparent that the narrow timetable that the Government established would make that impossible, and the provision of information was so inadequate that many months of due diligence would be required. In supporting the management team—modestly, I would suggest—it was also apparent that it did not have access to the full extent of information required. Indeed, we had to pledge on the following basis. I quote from that pledge:
	"We are willing to subscribe for units under the offering up to an aggregate value subject to our diligence of the stand-alone plan in due course".
	In other words we were not going to get the plan until after we had committed. Lack of clarity on Granite also aptly demonstrates our problems in evaluating the plan.
	I am sure noble Lords will agree that any Government who are genuinely trying to sell something should adopt a different course of action and it is my view that nationalisation was the Government's intention from the outset, but the combination of dither and spin were the feeble methods they used to draw out their decision. Further evidence of this is confirmed by the Government's refusal to accept an offer of £2 a share plus a £10 billion government line of credit guarantee from Lloyds TSB. The Government told Lloyds TSB that they did not have the funds to guarantee support of a £10 billion line of credit. Noble Lords should please not get their noughts in the wrong place, because I estimate that the Government are now providing a £100 billion guarantee compared with the £10 billion they were initially asked to guarantee. How good does this Lloyds TSB offer look now as the Government are about to be on the receiving end of years of litigation from Northern Rock shareholders and even the European Commission?
	We are addressing a Bill to shut the gate after the horse has bolted. This Bill does not address the two major levels of regulation imposed by this Government on the finance industry that have been referred to: namely, the so-called Financial Services Authority—the thorn in the side of most businesses—which has failed, despite its endless imposition of form filling and so-called regulation, to see this £100 billion disaster coming, and the directors who, despite endless directives on the code of conduct of the role of directors, failed also to control or envisage this shambles. And, to boot, the so-called "independent" Bank of England decision-making was hijacked by the Chancellor and became neutered in this whole mess.
	This Bill predicts that this event will happen all over again. It permits the Government to act like this in the next 12 months because that is the latitude we are planning to give them. It takes building societies virtually outside the scope of parliamentary accountability or day-to-day running. And—surprise, surprise—the Government do not have to return to Parliament to use powers to resolve another event of this nature.
	Several questions remain unanswered. We need to know what steps have been taken by the FSA and the Treasury to investigate the books of similar companies and protect the taxpayer from a further event. We also need to know why this business was not put into administration and an orderly run-down implemented and why is it still allowed to provide finance against a flawed business model. For example, it remains the only bank prepared to offer 125 per cent mortgages. Incredible. Why is the bank run by a board whose members apparently have limited knowledge of the industry, but do have the significance of being trusted allies of the Prime Minister? What steps are being taken by the Government to re-establish our reputation as a competent and decisive financial industry?

Lord Eatwell: My Lords, the noble Lord referred to the board. Could he confirm that Mr Sandler, who happens to be a member of my college, is an banker with considerable experience in the industry and is, indeed, highly qualified for the role that he has taken?

Lord Marland: My Lords, Mr Sandler's main experience was generated in running or in trying to convert Lloyds, which is not a retail empire. In my experience, he has no experience of running a retail mortgage business.

Lord Stewartby: My Lords, I do not know whether I am the only one of your Lordships who came to this debate not only to participate but to learn a good deal about the situation, but I find that I now have more questions in my mind than I started with. I want to pick up on one or two points that have been raised and I apologise for any repetition.
	It is almost 50 years since I began an apprenticeship in the City, where a senior manager with a lot of experience took me aside to give me a little private tuition in what he described as the main principles of good banking. The one that sticks in my mind most clearly went as follows: "Borrowing short but lending long, don't be surprised if it all goes wrong". In the intervening 49 years, it has quite often gone wrong, but never in remotely such a cataclysmic and spectacular way as in the case of Northern Rock, which is an object lesson in the perils of dodgy funding. We have to see what lessons we can draw from the experience that Northern Rock and the whole marketplace have gone through.
	I wanted to know what the taxpayer has actually bought, or is about to buy. I asked the Minister yesterday whether he could enlighten us but, having listened to the discussion about whether Granite is or is not part of the Northern Rock corporate group, I am completely unsure what I think about any assurance given on the value of its assets. I am sure that the Minister spoke in good faith, but it was not clear. If he would like to clarify that when winding up, it would benefit many of us.
	The next point has also been made, but I must emphasise it. Why the haste? We are dealing with important legislation at very short notice and with much of the documentation necessary to understand it still not in our hands. We do not know how the Government's relationship with Northern Rock is to be carried out. We have had a delay of five months since the storm broke back in September and now we suddenly have the opposite—a mad rush to legislate before anyone has had time to understand the background or to read the documents produced. I may have missed a lot but it seems to me on reading through the documents that we are legislating for a very technical process and that such detailed processes are not best legislated for without time and consideration to see what we are actually providing for. It is no good to have letters distributed to us during the debate when other documents and memoranda have not appeared. That is a terrible way in which to treat this House. Quite apart from the need of the House to do its job properly, it is also necessary in our constitution for Parliament to have long enough to consider complicated legislation that will have a widespread effect on important parts of the economy.
	I want to revert briefly to the Lloyds TSB approach in September. It is difficult to understand what caused the Government to give Lloyds a brush-off. They have spent five months that they now justify as being necessary to explore all avenues of a private sector transaction, yet when there was one—and, on the information that has been given, it did not seem to have any impossible conditions—it does not seem to have been given the same sort of reception. It would be helpful if the Minister could tell us what made the Lloyds approach unacceptable. We have had some press speculation about it, but that is not enough, as by bringing in a major banking name that proposal could have avoided many of the practical problems of managing the Northern Rock business and greatly assisted in retaining the good reputation of the City and its supervision and regulation.

Lord Lawson of Blaby: My Lords, the Minister addressed that briefly in his opening speech when he said that Lloyds had not made a firm offer. It did not make one, of course, because its tentative approach was brushed aside.

Lord Stewartby: My Lords, that is exactly the point. I used to run around the corridors for my noble friend Lord Lawson in the 1980s, when we were dealing with banking matters. I am glad to have him putting me right on that point, but it is true that nobody had put forward a formal offer at that stage. There were strong indications of interest but no formal offers, and that of Lloyds TSB was no different.
	I do not know whether any of your Lordships have approached a crossroads where traffic jams are frequent and read that notice saying, "Do not enter the box until your exit is clear". Well, we are being asked to enter this box without an idea of where the exit is, let alone whether it is clear—or where it leads to. When I listen to Mr Sandler comment, at least as reported, that he wants Northern Rock to compete vigorously and that this is only a temporary arrangement, I wonder how that will happen if the bank is to be run in a sensible, responsible way while not falling foul of the competition restrictions.
	On competition, it has not been mentioned that there is now an inherent problem, because this is the one deposit taker that has a 100 per cent guarantee on its deposits. All other deposit takers—banks and building societies—are subject to the compensation scheme and its limitations. The starting point is thus unequal competition, which can only get more unequal.
	I have been trying to think what the new management at Northern Rock should do. The answer that I have come to is that it should do the opposite of what it has been doing for several years, because it has been wildly irresponsible on both sides of its balance sheet. In its lending, it had that frenetic binge in the first half of last year when, as has already been mentioned, it had 20 per cent of all new mortgage business in the marketplace. Such a huge increase in assets is a warning sign, which ought to have been picked up. The FSA was uncomfortable but did not reach a point much beyond that. Although I was once a board member of the FSA, I do not remember its having its eyes closed. If Northern Rock is going, in nationalised condition, to go hard at new mortgage business, it will increase the risks for the taxpayer—that is where it all comes back to.
	On the funding side, it is no good trying to rely on money markets and securitised debt. What is needed for a proper housing finance business is a natural pool of individual savers. My noble friend Lord Lawson will recall that, in our Building Societies Act 1986, we insisted that, in order to qualify as a building society, you had to have the bulk of your resources from individual depositors and not by running off to the money markets or by getting involved with some tortuous sorts of fancy paper. It will be very difficult to return Northern Rock to a saleable condition as a corporate entity in anything like its existing form. We will just have to see how that goes, but none of us should be under illusions that this is just a tidying-up job and then we can float it off and everyone will have forgotten about it. It will not be like that. We should avoid all the behaviour that led the company into such trouble.
	We really ought to have had a chance to examine these matters in much greater detail. When I listened to the noble Lord, Lord Goodhart, on the question of the negative and affirmative resolutions, I realised how little I know about all that. There are plenty of other points in the Bill with which we will have to try to deal in the very short time available. We are plunging into a risky, difficult and complex situation without knowing where we are going. That is not a course of action that I recommend to your Lordships.

Lord Bilimoria: My Lords, when I first started my business, I was introduced to a well known businessman who told me something that I will never forget. He said, "Young man, empires are built on trust". What we have before us today is the result of the breakdown of trust—a breakdown of trust from the global banking system to a breakdown of trust at all levels.
	We have heard today that most observers refer to the summer of 2007 as the start of this crisis. It was then that the word "sub-prime" entered common usage, exported from the United States, and it was then that we became aware of the troubles at Northern Rock. It has been reported that the first warning that the Governor of the Bank of England received from the Financial Services Authority regarding the potential impact of the global credit squeeze on Northern Rock was in a telephone conversation in August 2007. As we have heard, that warning came far too late.
	What most people overlook is that the warning signs appeared much, much earlier than that summer. As we have just heard, early in 2007, Northern Rock was roaring ahead. In the first six months, there was an increase of 50 per cent compared with the year before. As we have heard, it was issuing 20 per cent of all the new mortgages in this country. In fact, even earlier than that, two years ago in 2006, the FSA had classified Northern Rock as a,
	"high impact bank under close and continuous supervision".
	It has come to light that the FSA did not plan an impact assessment for Northern Rock until January 2009. Maybe I have misread this—I do not know whether I am missing something here—but how could the FSA justify a delay of three years before scheduling a high-impact review of Northern Rock? In the globalised world in which we live, things move pretty quickly. The old saying that the United States sneezes and we catch a cold is true. What is more, if a bank is pursuing an especially aggressive policy, as was Northern Rock, surely one would expect rigorous supervision. Let me quote a professor from the Cass Business School at City University, Geoffrey Wood. He said that,
	"the FSA was asleep on the job. A very clear signal of a bank running a big risk is rapid expansion—it is really remarkable that the FSA missed it".
	Then, at the end of June last year, Northern Rock finally admitted that it had serious problems. Instead of taking decisive action, the FSA relaxed the technical requirements on the bank, allowing it to free up more assets. Then came the global credit crunch and the rest is history.
	I have often said this, but I will say it again: one of the best moves that the Government made in 1997, after they came to power, was to grant the Bank of England independence through the formation of the independent Monetary Policy Committee. Since then, the Bank has had the ability and the wherewithal to set interest rates and control inflation on a proactive and reactive basis month by month. That move has been instrumental in providing our country with the stability that has made our economy the envy of Europe.
	However, the regulatory framework that accompanied the independence of the Bank of England also introduced the now infamous tripartite system of the Bank, the FSA and the Treasury. When times were good, the tripartite system was a happy merry-go-round that seemed to work fantastically well. As we have now seen, when times were bad and pressure was placed on the system, it became a bitter blame-go-round. The lines of responsibility, accountability and authority all became and remain blurred.
	The Bank of England is widely respected around the world. It has a proud and historic reputation for authority, prudence and capability and it has had many outstanding individuals, including the current governor, Mervyn King, serving as its governors. Look at what has happened. In the Northern Rock crisis, under the new regulatory system the Governor of the Bank of England is fighting with his hands tied behind his back and, at times, blindfolded. In the United States, on the other hand, the Chairman of the Federal Reserve has in a crisis the advantage of being both the lender of last resort and the regulator. In the sub-prime crisis, the Fed was able to act swiftly to inject liquidity into the market and drastically reduce interest rates. In the case of the Federal Reserve, the right hand knew what the left hand was doing. In the UK, on the other hand, a month passed between the FSA's telephone call to the governor alerting him to the serious problems that the credit crunch would have on banks such as Northern Rock and the decision to inject £10 billion into the money markets.
	I genuinely believe that this Government have made great efforts to create an environment where business can prosper. Britain is one of the most open economies in the world and we are respected worldwide for our principles-based regulatory system. However, the once warm relationship that the Government have had with business has now definitely cooled. The Government have come under criticism for proposals that appear not to have been fully or clearly thought through. To give a few examples of what has happened in less than 12 months, I refer to the increase in corporation tax for small businesses; the proposal to almost double capital gains tax by removing taper relief, which was a wonderful incentive encouraging investment in enterprise and entrepreneurship; and, more recently, the uproar in the business community from all quarters surrounding the proposal to tax non-domiciles. Is the tripartite system of banking, governance, supervision and regulation yet another example of a policy not fully thought through? Did the Government truly and fully consider how the system would operate in a crisis?
	Today, we have been presented with a Hobson's choice. It is a situation that no one wanted, but we are being forced to rush through a Bill that will give the Government the power to nationalise Northern Rock. This crisis demands far more than this Bill. I urge the Government to continue with their plans and completely to revamp the regulation, supervision and governance of our banking system to enable it to be proactive, reactive and rapid. The Government will also have to establish clear lines of responsibility, accountability and authority.
	The eyes of the world are on us. At stake is more than the reputation of a Government or the future of a bank. At stake, as we have heard, is the reputation of the United Kingdom. At stake is our position as the leading financial centre of the world.

Lord Forsyth of Drumlean: My Lords, by this stage in the evening, most of the points that one wants to make have already been made, but perhaps I can make one point that has not been made, apart from by my noble friend Lord Lawson, which is to say how much sympathy I have for the Minister, the noble Lord, Lord Davies, for having to deal with the Bill. He truly is between a rock and a hard place.
	Rather like the noble Lord, Lord Bilimoria, I feel that we have Hobson's choice. The Government having rejected the initial Lloyds-TSB bid and the Chancellor having gone on the "Today" programme and announced that the depositors' money would be guaranteed by the Government, from then on it was inevitable that the Government would have to take control from the shareholders in some form.
	What I do not understand is the timing. I do not understand why it is necessary to deal with all this legislation in two days. I should be very grateful if the Minister could explain that. What is the urgency? Why, as my noble friend said, if we have such complex matters to discuss, can we not have time to do so? Why is it necessary to have all this done by next Tuesday? I do not understand it. What has been going on for the past five months? I know that investment bankers are expensive but I read that £100 million of our money is being spent on advice. We are spending £100 million on advice not just for Northern Rock and the Government but apparently we are paying for the advice for Mr Branson and the other bidders, which is outrageous. Speaking as an investment banker, we normally operate on the basis that if the deal is not done, one does not receive one's fee. No deal has been done here, so why is all that money being paid out and what was the impact of that advice? We have had five months of dithering and delay.
	I should like to ask the Minister a number of questions. I hope that he will deal with them in the wind-up or that we can obtain some answers before tomorrow, because I would not wish to have to repeat them or to make difficulties in Committee. We are entitled to answers to these simple questions. The Bill, which does not mention Northern Rock by name, has wide-ranging powers, as the noble Lord, Lord Goodhart, has indicated, and we are told that its purpose is simply to enable the Government to acquire Northern Rock without getting into hybridity difficulties. Normally if we are buying something we want to know the price, so how much are we going to pay for the Northern Rock shares? What is going to be the Government's position on the compensation for shareholders?
	If we do not know the price, it is a strange process to start on. I understand that, but what are we getting for our money? We have been given no indication of the nature of the assets. We have had concern about the special purpose vehicle in Granite and we have no idea what the liabilities are. In answers to Questions and throughout the course of the past five or six months the Minister has repeatedly told us that the loan book is sound and good. How does he know that? Have his advisers done due diligence? Does he have that information? Could we have it as we have paid all this money for this advice? I wonder about the quality of the loan book. I was brought up on the principle of high risk, high reward. If someone is paying high interest it is probably higher risk; and here we are dealing with a bank that was paying the highest interest to depositors and charging among the lowest interest rates to borrowers and had the highest debt to equity mortgages. It is an open question as to whether the loan book is as sound as is suggested.
	Why do we not have a business plan? What have the advisers been doing for the past five months? I read in the papers that Goldman Sachs advised the Government five months ago that they would have to nationalise the bank. Is that correct? Did they receive that advice? If that advice was being given, why has no one done the work? I understand that the European Union has to have information and a business plan by 17 March, which is soon. If the Government will be in a position to produce the business plan in three weeks, why can we not have the business plan now? Why have the Chancellor, the Minister and every one else refused to answer the questions that have been repeatedly asked: what is the bank, under government ownership—under state control— going to do? Is it going to be business as usual, as the new chairman says, is it going to be run down, or is it something in between? How is that going to work? Surely it will have to be in the business plan, and surely before the business plan is written we need to know the answer. Why are we not receiving an answer?
	Given the need for information, what is the purpose of uniquely making this public enterprise, as it will be, exempt from the provisions of the Freedom of Information Act? It does not apply to the Post Office or to National Savings & Investments or to any other organisation. What are the Government trying to hide by placing the provision in the Bill?
	There was no mention in the other place about what went on in the summer with Lloyds-TSB, as I said when the Minister kindly gave way to me. We are entitled to know as £100 million of our money is on the line because the Government made a mistake. Is it true that Lloyds-TSB was prepared to take over Northern Rock and that it asked for a facility of £30 billion over two years to be provided by the Bank of England at commercial rates of interest? It is true that that facility was intended as a backstop facility in case Lloyds were unable to provide its own liquidity? Is it true that the response from the Bank of England and the Treasury was that they were not prepared to provide that facility because the loan book was not considered sufficient security and that they demanded gilts as security?
	If it is true, why have the Government been telling the country that the loan book is a sound basis on which our money could be provided? I understand that the initial response from the Government was that the loan book would not be sufficient security and then they changed their position. They argued that Lloyds-TSB would have to pay a penalty rate of interest. All of that information has been reported in the press and bandied around the City and we have heard nothing from the Government about the facts. We are entitled to know what the facts are. If Lloyds-TSB was prepared to pay a commercial rate of interest, why were the Government suggesting that there would have to be a penalty rate? Is it because they felt that it would be seen to be giving an unfair advantage to one bank over the others? Compared to what is proposed now, that is derisory. While that was going on, if the Bank of England, the Government and the Treasury were taking that position, what was happening in the EU? The European Central Bank opened the window and was providing liquidity to any bank that wanted any amount of money because it saw the necessity to do so in the crisis.
	I have to ask the Minister: did the Chancellor drop the ball in the summer? Why did the Government not take the opportunity; or was it that the Prime Minister was planning an election and did not want anything to interfere with his plans in that respect? Why was it allowed to fall away? The effect of allowing the deal to fall away, as the Treasury knew full well, was inevitably that there would be a run on the bank and there would be the problems that we have had; that Northern Rock's good brand was trashed and the opportunities to move forward were limited. Here we are today.
	I am not going to repeat the points that have been made about the tripartite structure. When the noble Lord, Lord Bilimoria, says that the Bank of England was given independence, I would say not at all. As we have seen, the Bank of England was not given independence; it was given the right to set the interest rate. Even now, the Government are seeking to change the criteria, as inflation comes back into our system. I agree with the noble Lord that the tripartite structure has failed abysmally. It is clear that no one was in charge and that the Chancellor either refused to take a grip or was not allowed to take a grip by a Prime Minister who was putting his party political interests ahead of the taxpayer's interests.
	The Bill contains extraordinary powers, which apply to any financial deposit-taking institution. The Government are asking us to give those powers to the same people who dropped the catch in the summer and have given us five months of dithering and delay and great uncertainty. I certainly will not be voting for it.

Earl Ferrers: My Lords, whenever we have controversial Bills such as this there is always some poor blighter in the middle who is catching it in the neck. Today it is the noble Lord the Captain of the Queen's Bodyguard. Like my noble friend Lord Forsyth, I feel sorry for him. I am sure that all your Lordships will feel a great deal of sympathy because it must be the noble Lord's saddest day. He is introducing a Bill for the nationalisation of a bank. That has never been done before: no bank has been nationalised in England before. It is a bad thing that that should happen: not even the Labour Party nationalised a bank.
	One remembers the late 1970s. The question then was: what will the Labour Government nationalise next? The Minister may be too young to remember those days, but one wondered whether it would be the banks, the insurance companies, or the chemical industry? That put the frighteners on the electorate to such a degree that the Labour Party went into opposition for the next 18 months.

Noble Lords: Eighteen years!

Earl Ferrers: Well, my Lords, we have to give them a little help somewhere.
	We all thought that that was the end of nationalisation and that we would never see it again, but here it is. I wonder what the benefits of nationalising Northern Rock will be. Will it bring stability? Presumably that is its purpose, but of course it will not do so. The Government are putting £110 billion of taxpayers' money at risk. To the normal person, this is a telephone-number figure that compares with expenditure of £104 billion on public sector health and £34 billion on defence. It is a huge sum. Two and a half thousand people will be sacked, 144,000 shareholders will lose their money, 800,000 people will find that their houses are now mortgaged to the Government, and some may find that their houses will eventually be repossessed by the Government. They will find that charming.
	That is not a nice, contenting or relaxed state of affairs. If the Government wished to keep the bank functioning, why did they not take action earlier? After all, the shares were £12.14 a year ago; they are now 99p. There is not much left to shore up, so why did they not just let the bank go? This is in the nature of things sometimes. Some businesses do run into trouble and have to go out of business, and people are deeply hurt. One does not wish it, but it is not the Government's business to shore up ailing businesses, even banks. I thought that we had learnt that.
	History shows that this does not work. Look at Upper Clyde Shipbuilders; that did not work. Look at British Leyland; that did not work. Look at British Steel; that did not work. I doubt whether this will. This is totally different from Rolls-Royce being taken into the public sector in 1971, because if that had been allowed to go bankrupt, defence equipment would have had no spare parts and aeroplane engines would not have been available. That was why that was done, but Northern Rock is an ordinary bank.
	As we have heard, the Prime Minister says that he will take the bank into temporary public ownership and return it to the private sector soon, but this is not like taking an exhausted footballer out of a match, giving him a rest and then letting him return to the fray later on. I suggest that it will be ages before Northern Rock is ever returned to the private sector. If it is, it will be a very different beast.
	As has been said so often today, Mr Sandler, the new executive chairman, said that the company would compete vigorously in the market. Those are stout words that sound very impressive, but how do you compete vigorously? Offering half a per cent or 1 per cent more on its deposits might well draw funds to it, but is it fair, in an open market, for a government-backed bank to try to outdo its rivals? What happens if that succeeds? Northern Rock will do well, but what about its rivals? They might then run into trouble. If Northern Rock does not engage in that sort of competition, how will it ever get out of its muddle?
	Of course it is necessary for the best minds to be applied to this problem, but there is something bizarre about paying someone £90,000 per month to run it. Will the Minister say who is paying those salaries? Is it Northern Rock, or is it the Government? Of course, without the Government's backing, the company could not have afforded it and probably would have gone bust. I question whether that is fair or equitable trading. By nationalising the bank, the Government will be putting themselves deeper and deeper into the mire of business, banking and debtors, and that is not what government is for.
	Your Lordships may remember that in 1976 the Labour Government of the day introduced the Aircraft and Shipbuilding Industries Bill, by which the Government intended to nationalise some of the aircraft and shipbuilding businesses. I had the privilege of acting on behalf of the Opposition. As such, I was asked to the Farnborough Air Show. That was a very agreeable experience and great fun. At lunch, I happened to sit next to the chairman of de Havilland Canada, which had just been denationalised. I shall never forget what he said: "Ministers can say what they like about nationalisation: that they intend to let the business run on its own, at arm's length, and they will not interfere". We have heard all that this afternoon, too. "They may mean it, but it will be the civil servants who will badger the thing to death".
	The Act of Parliament will say what has to be done, and the civil servants will consider it their duty to ensure that the Act is working in the way in which it is drawn—indeed, that it would be a dereliction of their duty if they failed to do so—so they will badger the organisation with questions, strictures and rules, to say nothing of targets. Governments do not simply put £110 billion at risk without endless strictures.
	So the Government are bringing in a Bill to nationalise Northern Rock, but that is not what it will do, although that may be the Government's intention. Clause 2(8) gives the power to nationalise any bank or building society within 12 months of the Act being passed. That is a colossal power. Barclays, Lloyds-TSB, Nationwide—any bank or building society—can be taken over at the Government's behest. No doubt this has been inserted to prevent it being a hybrid Bill. However, the Aircraft and Shipbuilding Bill was a hybrid Bill because it proposed to nationalise some, but not all, parts of the industry. It was just like this Bill. There may be an advantage to some companies in being nationalised, and other companies that are not nationalised might like to be. The point is that the law that is being proposed is not the same for all who are competing in the same marketplace. That is why this should be a hybrid Bill.

Lord Naseby: My Lords, am I right in remembering that, at the time, the Government said that the Bill to which he refers was not a hybrid Bill, and that legal action proved that it was?

Earl Ferrers: My Lords, my noble friend is half right and half wrong. There was a fearful row about whether it was a hybrid Bill. The Government said that it was not, everyone else said that it was, and the Examiner said that it was. That Bill failed, and the Government produced another one in the next Session.
	The Government are getting over this problem by saying that it is not a hybrid Bill, but the purpose of hybridity is to be fair to all. By removing hybridity, you remove fairness. There is one particular point in which I am interested. Northern Rock has offered mortgages of 125 per cent, as we have heard. In other words, for a house worth £100,000, you could get a mortgage of £125,000. Two other banks were doing that, but have stopped today. Has Northern Rock also stopped doing that?
	Granite is legally owned not by Northern Rock but by a charitable trust administered through Jersey, as we have heard. Northern Rock considered that it controlled Granite, even though legally they were distinct. Northern Rock included Granite in its audited accounts, even though Northern Rock did not own its assets. If Granite is unable to repay the money that it has borrowed when it becomes due to repay it, it will fall to Northern Rock to do so. Will that still be the case once Northern Rock is nationalised? Perhaps the Minister could let us know.
	I fear that the Government have a tiger by the tail. It is not simple, it will not be simple, and they will be pulled into all sorts of difficult problems.

Baroness Kingsmill: My Lords, it might be appropriate at this stage to have a little context on why we are here. We have heard a lot about Northern Rock and its difficulties. But not so very long ago Northern Rock was a beacon of competitiveness and its business model was envied by other financial institutions. It was also a time when it provided a great service for consumers; hence 20 per cent of people took out mortgages with it and it had a substantial mortgage book.
	However, we have to remember that that was the sunny uplands. Thereafter, there was an overambitious business plan where success went to its head and it started to do things that were perhaps a little overextravagant. As previous speakers have said, borrowing short and lending long is very dangerous, particularly when interest rates may be volatile. It was a risky and unsustainable business plan at one stage. But we have to remind ourselves that the favours of the market place, the City, are easily won and easily lost.
	Something we need to think about in relation to Northern Rock is the lack of oversight from the non-executive directors, which has not been mentioned by previous speakers. Certainly, they were highly experienced non-executive directors and one might have expected them to show a greater degree of oversight. In the first place, this was a failure of management. In the second place, it was a failure of governance. I hope that the Minister will give me assurance that none of those non-executive directors on the board when Northern Rock got into the troubles that it did will continue to be on the board in the new nationalised version.
	It seems to me that all the actions the Government took were entirely appropriate in all the circumstances. It was entirely appropriate that they should take five months to look for a private-sector solution. I think we would all have preferred that to have taken place. However, the circumstances in which Northern Rock found itself, and to protect the interests of the taxpayers in relation to the guarantee of deposits, which in itself was an entirely reasonable to prevent further instability in the financial sector, made it impossible to do so. As I have said, it is very important to say that the risk of financial instability was brought about by a failure of management and a failure of governance.
	It is now very appropriate that Northern Rock should be taken temporarily into national ownership. That is the best way to ensure the money expended on behalf of the taxpayer already will be returned. Ron Sandler is an extremely good choice of executive chairman. I am sure that he will not wish to remain as executive chairman any longer than he has to and that a proper management board will be in place in the not-so-distant future.
	It is important to look at the competition aspects of this. At one point, Northern Rock was a force for good in competition within financial services. It certainly was a price setter and a number of organisations felt the competitive pinch when it was in its ascendant. Now, there is absolutely no chance that it will be a competitive force, as such. It will be subject to enormous scrutiny, not only from the EU to ensure that none of the provisions of state aid will be breached, but also from other members of the financial services industry; that is, banks which will be looking out for any unfair competition that could arise as a result of the arrangements with the Government.

Lord Forsyth of Drumlean: My Lords, on competition and the point that was made earlier, Northern Rock is offering very much more generous deposit rates and depositors to Northern Rock have a government guarantee behind them. We already have unfair competition. Where were the Competition Commission and Europe while this was going on?

Baroness Kingsmill: My Lords, the guarantees mean that Northern Rock will attract more depositors who are seeking security. But it is very unlikely that it will be able to sustain any uncompetitive rates to depositors in any long term. It is also true that our competition authorities, which have significant powers, will be able to give considerable scrutiny to this. Other banks also will be able to do this. Competition is not an issue that we need to worry about. I do not think that competition will be a serious problem. It is unfortunate that Northern Rock is no longer the competitor that it was, but it will not be anything like it was. It definitely will be a price follower; otherwise, the wrath of all will descend on it. I am sure that Ron Sandler will be only too aware of that and will have to operate in a sensible and conservative way.
	I should like to make a couple of further points. Lloyds TSB has come up over and over again. When I was at the Competition Commission, I refused to allow it to buy Abbey National, because that acquisition was deemed to be anti-competitive. If the same issue had come before me in relation to Northern Rock and mortgages, it would not surprise me if that had been found to be an uncompetitive merger as well because of the scale of the mortgage book of those organisations. I have no idea what the terms were or the reasons why that was turned down, but I think that it would, in itself, have been deemed to be an uncompetitive merger and probably would never have got past the regulatory authorities.
	I have a great deal of sympathy for the loyal employees who have had a significant degree of uncertainty over the past five months or more. Those people deserve our concern and our sympathy. However, there is one group of people for whom I have absolutely no sympathy whatever; that is, those shareholders who piled in in such numbers after the bank was so clearly in distress and who now are making what I hope are empty threats to sue. They would be advised to slink back quietly and not to make a great deal of fuss about this.
	On the whole, this regrettable situation has been handled with as much reasonableness as possible. If it had been dealt with any faster, there would have been a great deal of criticism of the speed with which it was all done. Five months is an entirely reasonable time to consider a merger or takeover by the possible candidates. Now, we will have to watch and see how it all works out, but for the moment, I am feeling reasonably optimistic.

Lord Lyell of Markyate: My Lords, I am glad to follow the noble Baroness, Lady Kingsmill, because I agree with her on one thing. I feel a great deal of sympathy for the employees of Northern Rock and for its small shareholders up there who regard it as a true rock and a safe place for their shareholdings. When I left university, my first job was in Newcastle. I grew to love the people of that deep, Labour heartland. While the Government may have let Northern Rock rather overbalance its judgment, I can understand why they stepped in, but I cannot understand the reasons why they proceed down the course of this Bill and the rather unlikely effort to make it business as usual.
	My first point, I hasten to say, is a personal one. I am a member of your Lordships' Select Committee on the Constitution, which met this morning. It will be understood that there was not time to produce a report between this morning and this afternoon. What I say is entirely personal, but it was understood that I would say something. This Bill causes concern. In due course, the Select Committee will probably look at things with hindsight, because the Bill will have gone through almost certainly by then. But I and others share a view in asking: why the haste? The noble Baroness rather emphasised that. There have been five months of what she says is not dithering. Why now do we have to do it in two or three days?
	My second point is, of course, the important one of hybridity. In reality, this is unquestionably a hybrid Bill. It is dressed up as though it covers other—or all—banks, but this is a hybrid Bill, dealing with one bank, Northern Rock. Its shareholders have constitutional rights, hence the interest of the Constitutional Commission. Private individuals, be they companies or simply individual persons, have the right to petition in a hybrid Bill, to be sure that Parliament will take their views and interests into account when legislating. That is not possible in this Bill. I congratulate the noble Lord, Lord Goodhart—he is not in his place—and the Select Committee on delegated legislation on their speed and efficiency. They had an opportunity, which they thoroughly fulfilled, to warn this House. There are constitutional issues to which we shall have to return.
	I hope to make my key point at not-too-great length. A number of noble Lords have dealt with the fundamental problem in this case. It is clear enough that matters were triggered by the sub-prime lending problem in the United States, but that was not the fundamental problem. After all, almost all mortgage-lending institutions in this country have, at least so far, managed to survive the vibrations from the sub-prime crisis. What we really need to find out—and a great many of my noble friends have already put their finger on it—is: why did the disaster occur in the first place; who was responsible; and why did our existing, or then current, banking, regulatory and governmental structures fail not merely to prevent it, but even to warn Northern Rock against it?
	Here, I believe that the present Government and no one less than the Prime Minister himself, as the former Chancellor, have very real questions to answer. The immediate responsibility lies, as the noble Baroness said, with the directors and senior management of Northern Rock. They committed what my noble friend Lord Stewartby said vigorously was a breach of one of the prime rules of banking: that if you borrow short-term in the wholesale money markets, in order to fund long-term lending, you are very likely to go wrong. I speak as a lawyer, not a banker. It is that kind of mistake that we hope our regulatory structures, which get more and more complex, will prevent. At this morning's meeting, those who understand regulatory structures and the terms of surveillance very well talked about the extraordinarily complex regulatory structures that are being built around everything, and the fact that they do not work. This was not started by this Government. The Financial Services Act 1986 has a good deal of complexity in it, but it has certainly been built upon and elaborated over the years.
	The fundamental difficulty lies in the elaborate tripartite system set up by the Prime Minister when he was Chancellor, where regulatory responsibility for the banking sector, instead of being, as previously, the clear responsibility of the Bank of England, was divided between the Treasury, the Financial Services Authority and the Bank of England. The FSA was supposedly in the lead but, frankly, was not up to the job. Sir John Gieve, as a member of the FSA, and appointed by Gordon Brown as deputy governor of the Bank of England, has taken a great deal of flak. It may or may not be fair, but it must be remembered that Sir John Gieve, who headed the FSA, has never been a banker. Sir John Gieve was a distinguished career civil servant. He is an administrator. In order to spot what was going wrong in banking circles and what was going wrong with Northern Rock, you needed to understand banking.
	When you see a comparatively small northern institution becoming the largest mortgage lender in the country, you wonder where the money is coming from. How are they funding it? It is not funded by capital. If you are a banker, it does not require genius to realise that it must be borrowing it. It is borrowing it on the wholesale market, and borrowing short and lending long. It is committing the fundamental error and there are very great dangers. The old-fashioned Bank of England would have said, "We must step in and warn it to draw in its horns and have a contingency plan to help it out of the problem when it happens". It is not the way of this Government. The Prime Minister gets plaudits for his intellectual capacity. He obviously has a huge capacity for detail, but there is an expression about failing to see the wood for the trees. That is what happened here. We need regulatory structures that will genuinely guard us against that in the future. I hope that they will soon follow.

Lord Higgins: My Lords, this is a dangerous and damaging Bill. It will certainly not bring the Northern Rock saga to an end. Many aspects of it give grave cause for concern. In one way, what is of widest interest and concern is the fact that it is not a Northern Rock Bill. It goes far beyond what would be necessary merely to deal with the Northern Rock situation. It takes very wide powers to deal with any bank that gets into trouble under the various initial clauses in the Bill. The trouble with that is its effect on the reputation of the City of London. It will be thought that Britain needs a Bill to bail out failed banks. The implication is that this will happen because the regulatory system is not adequate to prevent it happening. That is of great concern.
	One understands why the Bill is so wide: the Government are clearly desperate to avoid the idea that it is a hybrid Bill. My noble and learned friend who has just spoken referred to that. If the report of the Statutory Instruments Committee is accepted with regard to making the orders under the Bill an affirmative resolution procedure, those orders will, anyway, be hybrid because our proceedings in this House are not the same as those in the other place. The Government are not going to avoid that problem anyway. I am desperately concerned about the implications of the wide powers in the Bill as it now stands.
	The Bill is also, effectively, a licence to take risks. Why should people be prudent if they are going to be bailed out by the Government? There is some qualification to this. If you are going to take risks and need bailing out, you need to do it in the next 12 months. These are matters that require detailed analysis. It is singularly stupid of the Government—if I may presume to say so—not to give adequate time for both Houses to look at the Bill in detail. They will live to regret pushing it through, quite unnecessarily, in the way that they are.
	We are taking over a bank with no prospectus, a suspect balance sheet and no due diligence. I presume that, in the course of carrying out their very expensive operation, Goldman Sachs showed some due diligence. Will its report be put in the Library? We are certainly entitled to know what we are buying. Again, however, the implication of going along the route the Government have chosen is that the assets of the bank do not match its liabilities plus the loans which the Government have made.
	The Government have said throughout that the taxpayer will be protected. If you want to protect the taxpayer and the loan book is worth what it is said to be, you can sell off the book on a commercial basis, pay off the liabilities and loans, and that is the end of the matter. Instead, what the Government appear to be hoping to do is run the operation so that it gradually makes a profit and eventually puts Northern Rock into a position where the taxpayer's interest really is protected. But at the present time I have the gravest doubts as to whether that will be so. This also raises the question of unfair competition. It may be that the Government can do this because under its new ownership the bank will be in a stronger position than those with whom it is competing because it will be able to borrow at a better rate, and it is difficult to see how the Competition Commission will be able to force it to borrow at a higher rate.
	I want to say a few words about the difficult question of the Granite system, which I referred to an intervention to the Minister. He has now provided us with a document which sets out the situation. It reveals in the starkest form the sordid way in which a charitable trust was being used for financial gain, and that is something which can only be deplored. It also makes clear the complex situation we now face. I asked the Minister in my intervention whether it was true that the Granite arrangements appeared on the Northern Rock balance sheet. This document, which alas I am not sure was available to the House of Commons yesterday, shows that the Granite position is consolidated on the Northern Rock Foundation balance sheet. But the Minister then goes on to state that we are not nationalising Granite, for the want of a longer expression. If Granite is on the Northern Rock balance sheet and we are nationalising Northern Rock, I am puzzled as to how it is that we are not nationalising Granite. No doubt the Minister can explain to us how that is so.
	Perhaps we could also have some indication from the Government about the size of this interesting complex of companies. It is alleged that Granite amounts to something like £40 billion, a very substantial sum indeed, and has been operating on the basis of securitising the best quality assets in Northern Rock. We are constantly getting statements from the Government saying that the loan book is of very good quality, but it appears that best assets are in the Granite part, which is not going to be nationalised—or are we? At some stage, one becomes a little bemused by what is actually happening in this operation. However, I do think that we are entitled to know. I share in the sympathy that has been expressed generally for the Minister in this, and I can do so on a reasonably personal level since on occasion I am his parliamentary golf partner. None the less, I hope that he can provide us with answers, and indeed he was wise not to go through all the clauses one by one at the beginning of the debate.
	I turn finally to the report of the Joint Committee on Statutory Instruments. I doubt very much indeed whether there has been quite such a critical report for a long time. It considers in detail the memorandum provided by the Government setting out why they wish to have various points covered by the negative rather than the positive resolution procedure. They have put forward a series of spurious arguments which the joint committee knocks down totally because the real reason is the problem of hybridity. Why the Government were not upfront in saying, "This is why we're doing it", I do not know, because it was not likely that the committee would not catch them out—and indeed it has.
	There are greater problems here because some of the committee's other recommendations are very severe indeed, in particular with regard to the later clauses, such as Clause 12. It sets out a most extraordinary proposal of unusual delegation—we are grateful to the noble Lord, Lord Goodhart, for explaining it—to deal with an entire range of government legislation by way of the statutory instrument procedure. That is both dangerous and unnecessary. What is essential here is a very effective sunset clause. If the order goes ahead, we shall see how it works out in the case of Northern Rock, but we really ought not to allow the dangerous proposals set out in this legislation to remain on the statute book any longer than necessary. I believe that we should repeal the Bill at the earliest possible moment, but meanwhile we have most certainly got to tighten up the regulatory procedure generally because it is clear that the tripartite system has not worked. It ought to be possible to go back in rapid order to a situation where the Bank of England has sole responsibility and thus can effectively protect the interests of both the taxpayer and consumers.

Lord Desai: My Lords, it is a great pleasure to follow the noble Lord, Lord Higgins. I start by pointing out that when we debated the gracious Speech, I said then that we were in the middle of one of the most serious financial crises we have had for a long time and that it was not over. No one should presume that in the next 12 months, while this Bill lasts, there will not be any more bank failures. I certainly would not put money on that, so I will keep an open mind on whether a 12 months' limit on the Bill is a good thing.
	I have been struck by the great wisdom of hindsight in the debate, as well as a bit of rewriting of history. When a bank fails under a Conservative Government, it is just a debacle; when one fails under a Labour Government, it is a shambles. I like that because if we are ever in opposition, which I doubt, I shall use the same expressions all over again. We have also been mixing up the faults of the management of Northern Rock and treating them as if they were the Government's fault. We have been mixing up the fact that there are bound to be delays in considering offers to buy the bank, as pointed out by my noble friend Lady Kingsmill. Five months is a short period in which to sell a bank like this, and that too is seen as the Government's fault. Finally, the fact is that the tripartite arrangement has been operating for nearly 10 years and this is the first and only failure. Suddenly, everyone says the whole thing has broken down. I submit that one great thing about financial markets is that they change so rapidly that any legislation passed or arrangements made in one year are obsolete within the next two or three years.
	A major aspect of the current financial crisis, which I also pointed out in the debate on the gracious Speech, is that the people in charge of big banks have themselves not been aware of the business they are conducting. They too have been surprised by the level of losses. That is true of Citibank, Merrill Lynch, Bear Stearns and others like them. This is a business in which the rocket scientists get younger and younger and understand what is going on, while the bosses get older and older, are given large compensation, and do not understand the business they are in. Moreover, as has been pointed out, financial markets normally run according to people's expectations. We know the strategies to follow, which business plans work and so on, but occasionally there is what they call a black swan. When a black swan hits the markets even a genius fails, as we remember with long-term capital management.
	Northern Rock has failed through no fault of the Government or any member thereof. When Northern Rock failed, we were told that there were offers by Lloyds TSB. I do not know how concrete those offers were; as I read it, even if there had been a concrete offer, Lloyds taking over Northern Rock would have raised issues of competition so severe that the European Commission would not have allowed it beyond first base. I doubt that it was as easy as people pretend with hindsight—that all that we had to do was sell it to Lloyds with no questions asked and that would have been the end of it. Once you did not do that, you had to protect depositors, you had to come out openly and give a guarantee, and that triggers a process under which the Government say, "We nationalise on day one". Had we done that, the storm would—believe you me—have been much bigger than it is now. So, we waited patiently and saw whether the market would turn up with a reasonable offer, but it did not. That is the nature of the market and we have to respect it. If people cannot give us an offer that will take the business off the Government's hands and guarantee taxpayers' money, the only alternative is nationalisation. Had we given it to Branson or the management and the consequence had been that we were subsidising a huge bonanza for private sector buyers the storm would again have been fantastic. By not agreeing to a private sector bid we were being prudent and cautious. We were looking after the taxpayers' interest and depositors' interest. On that ground a lot of the criticisms and the moralising that has been going on from the Opposition are completely beside the point.
	This has been an open process—everybody has known that the Government were seeking private buyers and that there had been discussions; finally, when it turned out that the Government could see that neither of the two offers were viable, they nationalised. Once you nationalise, speed is of essence. I do not criticise the Government for giving the Bill a very short time in Parliament. Although it is a technical Bill, there is nothing in it which requires detailed revision or amendment. The amendment proposed by the noble Lord, Lord De Mauley, about removing hybridity is important; that has been reflected in the report of the Delegated Powers and Regulatory Reform Committee. Once we have fixed that and changed from the negative to the affirmative procedure, there is nothing else that needs to be amended in the Bill and we can all go home. The sooner we can do that the better. There is no virtue in spending a lot of time on a Bill that is short and technical and needs a quick response.
	I commend my noble friend, who has been much sympathised with. I think that he did a good job; he explained the Granite problem to us in words of one syllable, but people still insisted on having it all written down; that has now been done. I suspect—I have only read the documentation as recently as other noble Lords have done—that the reason why Granite is not part of the nationalisation plan is that we do not want to be liable for its bonds. That seems to be the way to do it. I am guessing; I have only had a short time to read the document.
	Some of our laws are not sufficiently tight to be able to place the blame on the people who got into the mess in the first place. We ought to have laws sufficiently strong to haul the management and directors of Northern Rock before some court—and perhaps the auditors, whose duty it was to point out that the business model was failing. Perhaps somebody will tell me that we already have such laws on our books; if so, let us use them and let us get a few more people into jail. If this had happened in America, the entire management would have been in jail long ago. Our laws are too lackadaisical in our laws and in allowing this sort of behaviour to go on. It is time to put a stop to that.

Lord Bell: My Lords, I rarely speak in the House. One reason is that, as the noble Lord, Lord Forsyth, pointed out, by the time one gets to speak, everybody has said everything that one was thinking of saying. I will make one simple point; I will certainly allow the noble Lord, Lord Desai, to go home early, because I shall not take up much of your Lordships' time. Noble Lords will not be surprised that I am opposed to nationalisation and that I shall, therefore, vote against the Bill. When I read what the Government's policy on Northern Rock would be, I asked myself a serious question. I have always been a huge fan of how the Labour Party recreated its image, changed its branding and got elected as a long-term Government. It struck me as interesting that the fundamental core in the rebranding was the dropping of Clause IV and the abandonment of nationalisation. It seemed odd that, all of a sudden, when confronted with a crisis, the new Labour Government's answer should be, "Let's nationalise it", albeit for a short time.
	When the Labour Party abandoned nationalisation, it said that nationalisation was an economic problem, not an economic solution. Yet the Government have suddenly decided that, after all, nationalisation is the solution, with the result that they are now rushing through a Bill giving Ministers the power to nationalise not just one high street bank but any bank. Is it, I ask myself, part of their grand economic strategy? Clearly not. Is it because they believe, like the Labour Party of old, that the public sector is better at running companies than the private sector? No, I believe that the Government have changed their view on that, although that is perhaps evident not tonight. Is it because this has been forced on them by the world banking crisis? Not as far as I can see, because, as far as I know, no other country is nationalising a bank. Nationalisation is not a policy that the Government believe in; it is not what they wanted and I do not believe that they think that it will work best. How on earth have we got to this situation? I can give a simple answer: through sheer incompetence.
	When the Northern Rock crisis broke last autumn, the Prime Minister was, as we all know, dithering and shilly-shallying over whether to call a general election. He did the same dithering and shilly-shallying over the future of Northern Rock. That was when the scales fell from the eyes not only of the Conservative Party, which for many years had been blinded by the glow of new Labour, but also of the public. The true nature of this Prime Minister is that he simply cannot take decisions until they are forced on him by events. That is the genesis of the Bill before your Lordships' House. The Government, having struggled for months to avoid nationalisation, are now standing on their head and have the gall to say that a nationalised Northern Rock will be business as usual. What absolute nonsense.
	The Bill breaks all the rules of good government and good business. The Government say that they believe in openness, but what is their strategy as the 100 per cent shareholder for the bank? Hands on or hands off? Expansion or contraction? They do not know and so they cannot tell us. The Government preach accountability, but to whom will the nationalised Northern Rock be accountable? The answer, in theory, is to everyone, which, of course, in practice means to no one. Then there is the Prime Minister's old friend prudence—thrown overboard as the taxpayer is saddled with potential liabilities of over £100 billion. What about fair competition? A bank with a government-guaranteed, copper-bottomed underwriting is bound to put other banks at a competitive disadvantage and to distort the market. If you think that the EU will stop that or that the Government can stop it as the shareholder, let me point out as a marketing man that most markets are driven by sentiment—how people feel about something is what leads them in making decisions. Everyone will know that this bank is underwritten and that will drive their decision-making process no matter what is said by the EU or by the Government as the shareholder.
	There is no discernible principle, no political philosophy, no vision and no clear objective underlying the Bill. It is an accident of a Bill introduced by an accident-prone Government who cannot control events and who, instead, are controlled by events. Every time the Government try to take a decision, they cannot. Whether on Northern Rock, non-domiciles or capital gains tax, each time they delayed and they dithered. These are the hallmarks of an incompetent Government simply living from day to day. No wonder people are asking, "What is the point of this Government?". Let me indulge myself by quoting a slogan that I coined some years ago: "Labour isn't working". I urge your Lordships to vote against the Bill.

Lord Naseby: My Lords, I, too, am conscious of the need not to repeat speeches that have already been made. I want to add a little to the background and the early stages of that background, to demonstrate why the proposals will not work and to ask some questions. I do this from a background of being an FSA-approved person. I have chaired two financial services companies recently and I currently chair one quoted investment trust. I am primarily a marketing man who specialises in financial services. Is this background the least bit relevant to the Bill? I think that it is. I know the FSA in some detail and, more important, like my noble friend who has just spoken, I know whether or not a brand is dead. This brand, Northern Rock, is dead and cannot possibly be revived.
	Looking quickly at the antecedents and the parts that have not been covered, I believe that it was in the autumn of 2005 that the Government's leading financial experts realised that the failure of a high street bank would create a serious problem in the UK. I understand that meetings were held between the Treasury, the FSA and the Bank of England and that the Minister involved was Ed Balls MP. By the autumn of 2006, a minute had been sent to the then Chancellor, now Prime Minister, Gordon Brown, which suggested that urgent action was required in order to anticipate such a problem. The tragedy was that that urgent action was never forthcoming. Once again there was no decision taking, just dithering.
	Then, of course, as we know, along came Northern Rock to compound the whole problem. It is alleged that the FSA was concerned and was seeking stress-testing and so on, but when the real question came on 27 June 2007 and Northern Rock announced to the Stock Exchange that it had a problem, the FSA's reaction seems solely to have been one of not acting at all. In fact, it did the exact opposite by relaxing the controls, allowing the bank to free up certain assets and to make a big payout to shareholders.
	This then became a joint problem with the Bank of England, the FSA and the Treasury. As we have heard, a lifeline was offered by Lloyds Bank and rejected. The election was looming and the heartland of Labour's north-east was in peril. There was no leadership and no decision was taken until last Sunday. The result, as we know, was Labour's old traditional policy of state control.
	Allegedly this is temporary, but it cannot be temporary. Let us consider the case history of Abbey National and the turnaround achieved by Mr Arnold. That was a reasonably good brand but it took him three years to turn it round, so how on earth can this dead brand of Northern Rock be turned round in any shorter time? It cannot be done. Branson has a highly respected brand but he reckoned that this was not worth the risk in the end. Incidentally, why was he given an extra month to work out his proposals? Shades of insider dealing there, I would venture to suggest. But Branson walks away, as has already been said, with £5 million in cash, millions of pounds worth of free publicity and perhaps a beneficial pay-off in the future.
	Both Branson and Arnold know that it is impossible to pay back with that organisation the £110 billion of bank guarantees, the £100 million in fees that has been spent, the expenses, the redundancies, the pension contributions and so on. If they cannot do it, how will Sandler succeed? Mr Sandler's track record has not been a huge success over time. Colleagues may remember the Sandler suite of stakeholder products. They are all dead ducks in the market—no one buys them, no one markets them, no one wants them. That is not financial success in retail financial services. They are totally dead ducks. That is not terribly encouraging. Why did they fail? They failed because both he and the Treasury thought that cheapest equalled value. It does not in financial services.
	Even on the financial control front, Sandler's track record does not appear to be that good. In 2006, I am told, he was chairman of Kyte Securities, which was fined £250,000 for financial control and accounting failures. That is not a good antecedent. He has a team of independent directors, we are told, but they are all close friends of either the Prime Minister or the Chancellor of the Exchequer. Hardly a recipe for independence.
	How can it be business as usual? Let me repeat a question to the Minister. Even today on the website there is the highest return on a cash ISA, the highest return on a deposit account and, as far as I know, as of yesterday, Northern Rock was still offering 125 per cent mortgages—all backed by Her Majesty's Government. Is this fair competition? Why are the Government unable to be more open and honest and tell the people the real truth?
	The business has to be downsized—there is no other prospect. Fifty per cent of the book has to be sold off and, sadly, yes, probably 50 per cent of the staff have to be made redundant. The retail savings side should be saved. At least National Savings & Investments is highly efficient these days; the whole of the retail side could be moved across there and individual depositor's positions safeguarded.
	I conclude by asking my questions. Who will monitor the fairness? I have no faith in the Competition Commission; I have no faith in the FSA any more; and I certainly have no faith in the Government. I have some faith in Europe, but Europe acts after the event and that is too late. How will Parliament be informed? I think that we have a right to know how Parliament will be regularly informed. Are the terms and conditions of the new company to be determined by the remuneration committee of that board or are they to be determined by the Government? I ask the question again: is there any bonus for Mr Sandler? Is he working full time or part time? As I understand it, he is a non-dom. This question has been asked before, but it has to be asked again: why is Northern Rock to be exempt from the Freedom of Information Act? Finally, why is Clause 11 even in the Bill at all? Of all the Ministers, this Minister knows full well that the building society movement is totally different in its mortgage lending, in its capital structures and in the way in which it is controlled. It is totally different from the banking sector; it is not a problem and should not be in the Bill. I hope very much that that clause will be deleted.
	So there you have it. It is a sad day for a company that a year ago was 67th in the FTSE 100 on the basis of market capitalisation and now, frankly, is nothing. This is Prime Minister Gordon Brown's biggest gamble. He will lose it. More important, British taxpayers will lose their money as well. It sends totally the wrong message to foreign investors who have so far chosen this country for its liberalism and openness in financial affairs. Boom has led to bust and prudence has gone to new Labour's casino.

Lord Shutt of Greetland: My Lords, the Title of this Bill is Banking (Special Provisions), and special it certainly is. The words "Northern Rock" are not in the Bill and yet that is what it is about. Why are we here? In his contribution the noble Lord, Lord Stewartby, mentioned the business of borrowing short and lending long, which has been the model of the building society movement for more than 150 years. What is different in this case is borrowing short in bulk and lending long. Reference has been made to the word "sub-prime". I am not certain I understand what it means. It could be one of two things: either lending takes place on rather doubtful property; or lending is given to people without the resources to repay. But as well as borrowing short in bulk and lending long, and these two different ways of being sub-prime, there is general incompetence.
	We have heard that Lloyds TSB was some months ago contemplating coming in, that Virgin was prepared to buy and that the group that the noble Lord, Lord Marland, was part of was also prepared to come in. The due diligence of these people suggests that there is a feeling about that there is still some value. I am not clear whether there is value or not at the moment. Is there any value for the small shareholder who received shares 10 years ago when the demutualisation took place? Is there any value for the Johnny-come-latelys who have bought shares in the past few months—the hedge-fund folk? Is there any value for the Northern Rock Foundation? This is what I really want to speak about.
	The amazing thing about the Northern Rock demutualisation was that it was done on the basis that when the building society decided to become a bank, the intergenerational equity that had been built up over 150 years would be shared between its members who would become shareholders and the greater community of the north-east of England. Five per cent of the profits were given to the Northern Rock Foundation, contingent on a 15 per cent stake in foundation shares to be relevant on a winding-up. To listen to this debate so far, one would think it was all about a bank which is in trouble, but to many people in the north-east of England Northern Rock will mean the work that has been done by the foundation. Of the £192 million which went from Northern Rock to the foundation, £175 million have been spent so far in that community.
	What is to become of these shares? Nationalisation is not a winding-up. The foundation shares are held by the Northern Rock Foundation. The accounts say:
	"These shares carry no rights to dividends but rank pari passu with the ordinary shares in respect of other distributions and in the event of a winding up".
	But nationalisation is not a winding-up so do these shares stay as a contingent 15 per cent on the balance sheet so that on a further privatisation of Northern Rock the 5 per cent of the profits and 15 per cent on a winding-up are handed on to the successors? It is very much a special case. This is a general Bill about handling any bank or building society and the words "Northern Rock" do not appear, so all this will be left to the order. Will the order tell us about these very special shares and their standing? The Government have said that they are determined that the foundation should receive £15 million in years one, two and three. I suppose that will see shareholders OK for the moment, although it is half what they have been receiving in the past few years. But what is the long-term position? As I said, it is a very special case. The foundation was not given 15 per cent of the shares; it was given a contingent 15 per cent. Had it been given 15 per cent of the shares, it would have been wise, in my view, to have diversified. But it did not have that luxury and therefore it is in this very strange position of being a contingent shareholder without any prospect of a winding-up. I would be particularly grateful if the Minister could find out what the score is going to be and whether this is going to be important as far as the order is concerned.
	The Minister mentioned some draft orders. I was not clear whether these have already been produced and are available for us to look at or whether he was suggesting that they are going to be available on Monday. It would be useful to know. But it seems important to consider under this Bill the particular position now for the north-east of England of this important institution which has done so much tremendous work in the past 10 years in that area.

Lord Ryder of Wensum: My Lords, I appreciate that the regulatory consequences of the collapse of Northern Rock will not be obscured by this Bill because the Government have said that they will undertake a consultation exercise on potential reform of the banking supervisory legislation and this will provide us all with an opportunity to review the effectiveness of the tripartite system and to rectify some of its shortcomings. I shall make one general observation and comment on a recommendation of the Treasury Select Committee, whose report was published on 26 January 2008.
	The tripartite system failed because it allowed the Treasury, the FSA and the Bank of England to shift the burdens of responsibility at crucial moments. As far back as January 2006, the FSA was aware of the tom-tom warnings in the markets relating to the financial strategy of Northern Rock. A year later in February 2007, Northern Rock's share price began to tumble and between then and June the FSA could and should have stepped in. As other noble Lords have remarked, to compound the problem the Treasury then unwisely spurned the chance of a takeover by Lloyds TSB involving £30 billion in state-backed loans to be repaid over a two-year period. Here, too, I am forced to conclude that political calculations overrode sounder economic counsels.
	Surveying the aftermath of this debacle, the Treasury Select Committee produced a lucid report. I was struck by paragraph 276. It declared that despite the evidence of some of the witnesses to the contrary, the tripartite system had not worked well, partly because,
	"the people side of the operation"
	had shown weaknesses. And no wonder. As my noble friend Lord Lawson of Blaby observed, the Banking Act 1987 was dismantled, and with its demise went the necessity of appointing people with expertise and first-hand knowledge of banking and the markets in a clear, uncluttered structure of supervision. Under that erstwhile system 20 years ago, as the Economic Secretary to the Treasury under my noble friend Lord Lawson, I saw the importance of the quality of the daily relationships between the Treasury and the Bank at Under-Secretary and Deputy Secretary levels. If working relationships then broke down for reasons of chemistry, vanity or turf protection, new people were put in place. In the case of Northern Rock, it is clear that relationships foundered without the necessary corrective action.
	In these days of heavier, more prescriptive regulation, over-reliance is placed on the book and too little on putting the right people—experienced City banking practitioners capable of demonstrating good judgment—into key jobs at senior levels. That is one reason why I was struck by the Select Committee's recommendation 66 that a new post should be established called the "deputy governor of the Bank and head of financial stability". He or she would head a new unit with powers to intervene in failing banks. That would help, in part, to remedy some of the defects of the tripartite system. The holder of this new post would have a key role in ensuring that the Chancellor received authoritative and co-ordinated advice in any future case of financial instability. If that new role is created, as I hope it will be, then I go further than the Select Committee by suggesting that the new post must be filled by a person with extensive working knowledge of the banking system and markets rather than by an economist, a civil servant, a journalist or an academic. I retain respect for the governor and the deputy governor of the Bank, but neither of them had direct or significant experience of the baking system or markets before assuming their offices. Surely that imbalance of first-hand knowledge at the top of the Bank of England must be avoided in future.
	Of course I would prefer a return to the better features of the Banking Act 1987, but, if that option is discounted by the Government, I commend to them the model recommended by the Select Committee.

Baroness Ford: My Lords, I support the Bill before the House to enable the Government to take Northern Rock into temporary public ownership. I realise that is a bit of a minority interest in the House today, but I shall persevere. I very much regret that the Government find themselves in this position but, from the moment last autumn that my right honourable friend the Chancellor of the Exchequer provided guarantees for depositors in Northern Rock, I think we all understood that a temporary period of public ownership was always one of the options on the table. Indeed, my right honourable friend has always been explicit in his acknowledgement of that as an option.
	I do not recall too much opposition in September to the idea that Government should take action to protect depositors. In fact, I am pretty clear that there was cross-party support for the action taken at that time. But I do wonder whether, in retrospect, it was wise to have a guarantee that was so widely drawn and therefore, in the absence of viable alternatives, inexorably led the Government to the position where all of the liabilities of this bank, however temporarily, have now fallen on the public's shoulders.
	The important aspect of the stability of the financial system had also to be considered, however. Letting Northern Rock go to the wall could have had significant consequences for the UK's financial stability. I am perfectly well aware that some noble Lords have taken a different view today, but the plain fact is that with the capital markets in the febrile condition they were in last autumn—and I speak as someone who earns her living in the capital markets—I am not prepared to dispute the Chancellor's judgment. He made a call that the right thing to do was to stop the run on the bank, not just in the interests of depositors but in the wider interests of UK financial stability. It was a call that, measured against that yardstick, has so far been seen to be correct.
	I am also clear that the Chancellor has always said that his preferred position was a market-based solution. I am afraid that I have to disagree with the noble Lord, Lord Bell; my right honourable friend has always said that such a solution would be the best option for the rescue of Northern Rock. I agree with my noble friend Lord Desai; it was right that my right honourable friend should take the time to explore whether such a solution could be found. It was quite right that, having decided to explore alternatives, those proposals that came forward should have been taken seriously and given proper and diligent consideration. Had that not been the case, the charge today would have been of precipitous action, or panic, or some such. I imagine that the Government are perfectly happy to plead guilty to the charge of taking enough time to consider this important issue really seriously.
	This crisis, as other noble Lords have said, was not of the Government's making. The genesis of today's problems lies in the business strategy pursued by the board of Northern Rock—as mentioned by many other noble Lords—and as supervised by the FSA. It was not my right honourable friend the Prime Minister who devised the strategy of borrowing short and lending long: nor was it my right honourable friend the Chancellor of the Exchequer who sat on the board of Northern Rock, responsible for exercising fiduciary responsibility and, frankly, signing up to a strategy that reinvented the concept of capital adequacy. It is a bit rich to suggest that the Government are somehow directly culpable for the actions of a publicly owned company that was independently regulated. To suggest that the perfectly sensible position now being taken by the Government in facilitating a temporary period of public ownership is somehow akin to the way in which nationalised companies used to operate in the 1960s and 1970s is a gross distortion.
	The Bill before us is the logical and appropriate solution at this time to give shareholders and management time to find a solution and an approach that meets the three objectives that the Chancellor has consistently set out since last year: to best protect the interests of taxpayers, to continue to support financial stability and to protect depositors' money. When tested against those three objectives, neither of the other solutions on the table matched the option of taking Northern Rock into public ownership, so for those reasons it deserves the support of the House.
	There are important issues that have been raised today that need to be explored further in tomorrow's deliberations. It is important to determine what exactly is coming into public ownership. Are the assets wrapped in the Granite SIV, which are consolidated on the balance sheet of Northern Rock, to be included or not? I listened carefully to the Third Reading debate last night in the other place and have now read the letter that was circulated, but it remains unclear to me how these assets are to be classified. I encourage my noble friend the Minister to set out more clearly tomorrow the difference between ownership and control; it might reassure some noble Lords if we were able to do that.
	We also need to explore what business model is to be pursued by the new management. Is it a growth plan, or are we really talking about an orderly sale of the loan book when conditions permit? Some clarity on that question would also go a long way to reassuring the concerns of some noble Lords. What is the likely reaction of the European Commission on the question of state aid? I know this is a difficult question—and my noble friend may not thank me for asking it—but how temporary is temporary? I hope that these issues can be explored in much more detail tomorrow because they are important issues and they have been raised in a singularly articulate way in the House tonight.
	In finishing, I would like to add one other point and, in so doing, echo a range of the comments made by other noble Lords. I, too, am dismayed that some aspects of the very business model that is now so widely discredited are still being pursued by Northern Rock. I refer to the practice of approving mortgages, at a loan-to-value ratio of 125 per cent, still being advertised by Northern Rock. I listened very carefully to my right honourable friend the Chief Secretary to the Treasury on "Newsnight" on Monday night and in the other place last night. She is of the opinion that it is for the new management of Northern Rock to determine its business practices. I really find myself disagreeing with her. On this occasion I am pretty clear that enough is enough. I really hope that Ron Sandler is paying attention.

Lord Marlesford: My Lords, I would really like to be able to acquit the Government of blame for the collapse of Northern Rock. These things happen. I am afraid that this debate has shown very clearly that the consequences of Mr Gordon Brown dismantling the protective mechanism which was in place to spot trouble before prices burst must have contributed to us being where we are now. I would like to say first, before I raise various questions, that we should look at the economic backdrop against which these events have unfolded here. I believe it makes the criticisms of the Bill which we have heard and the events leading up to it all the more serious. I have just returned from a three-day conference of American fund managers where there was a great deal of interest in Northern Rock.
	There is no doubt that the world economy is shuddering as what started as a credit-crunch storm seems to have uncovered a tide of unsound credit which could destroy much of the potential for economic progress, for years rather than just for months. The extent and the volume of toxic credit based on unsound lending has been far larger than was anticipated even a few weeks ago. It may well have been a tidal change which was neither recognised nor generally predicted, until the storm broke.
	While the scale of the problem may well push the western economies into recession, it is probable that a longer term result than the recession itself will be a reduction in the volume of credit with much tougher lending terms and higher rates to reflect risk. Inevitably, there is going to have to be more state control of the practices and techniques of financial institutions worldwide, since so many of the most glittering world-financial names have been shown to be disastrously incompetent at huge cost to themselves.
	One of the really serious things is the way in which consumer credit has overwhelmed the capacity for business credit. What capitalism essentially needs is business credit. That has been the case since Adam Smith, and Marshall, going on to Keynes. Business credit is what makes things tick. Consumer credit is now so large that it has dried up business credit, for the moment at least. That is what has caused the problem; the supply of business credit. Incidentally, I do not think that the central bankers are all free of criticism. There are two who I do not criticise: the governor of the Bank of England and Monsieur Trichet from the ECB. Both of them have done rather well.
	The esteemed Alan Greenspan has lost a certain amount of his reputation for having been a sound steward of the American economy. I do not know if any other noble Lords have read his autobiography, The Age of Turbulence. In it I found the most devastating quotation:
	"I was aware that the loosening of mortgage credit terms for sub-prime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk".
	That book was published a few weeks before the storm broke. I suspect he regrets it was not published a little bit later. One effect of this is to erode the confidence in the world's central bankers. The reputation for competence of politicians, as economic managers, has already eroded. Sadly, the high reputation for a while of our own finance Minister, Gordon Brown, has now been shown not to have been justified. As Prime Minister he has disappointed his supporters as much as he has astonished the wider public. Sadly, for him, his reach does seem to have been shown to be greater than his grasp.
	There are a number of specific points that I would like to raise which come in the Bill and in the consequences of the Bill. The first is on hybridity, which has been mentioned a number of times. We all realise that the Bill has been drafted in a way so as to avoid hybridity. On the other hand, there is a very clear procedure for testing hybridity and getting a ruling on it. I am not clear how this works in the case of a piece of legislation which is being rushed through like this. As I understand it, if there is a claim of hybridity, and therefore of hybrid procedures which enable applicants to challenge the Bill and to object to it, the Speaker has to give a ruling on whether the Bill is hybrid. I do not know whether that has actually happened, whether there is time for it to happen, or whether the Bill can get Royal Assent before it has happened. I think it is an important point that must be looked at.
	Then there is the question of Northern Rock in its publicly owned form and what it has to do. I am absolutely convinced—not just by my noble friend Lord Lawson who said it at the beginning, but by what has been said by everyone both in the House and outside—that there can be no question of the Northern Rock under public ownership continuing as though it were a commercial concern. One of the things that really astonished me was in the Statement that the Chancellor of the Exchequer made on 21 January in which he said it is to be owned and run in the private sector as a commercial bank, but with the Government providing backstop guarantee for private financing. That is a contradiction in terms. You cannot have a government backstop for private financing. It is then no longer private financing. That is perfectly obvious. We are in a slightly similar situation now, except that the bank is about to be taken over. It is absolutely crucial that we know what it intends to do. In my view, the right answer is to run it down, for it to cease to grant any further mortgages. I think it can continue to take deposits because it is basically now a government savings vehicle. It is therefore okay for it to take deposits, but it should not be allowed to extend its business and liabilities by giving out further mortgages. The mortgages that it has been giving out recently have themselves apparently been as unwise as those which the Government allowed it to give because of a failure of proper supervision.
	I also have a warning. I suspect that at some stage someone will say, "Wouldn't it be nice if we kept Northern Rock as a government supplier of housing finance? After all, the United States has had two very large government finance organisations, Fannie Mae and Freddie Mac, and they have done very well over the years". The fact is that they, too, are now running into considerable difficulty. However, not only is it not a function of government to supply finance for home ownership; there is currently no way that the sort of resources which would be required would be available. I know that that has not yet been suggested, but it might be and I want to warn against it.
	The Bill goes far too far. Clause 12(1) states:
	"The Treasury may by order make".
	There is then a great list, one of which is,
	"exempting directors of any relevant deposit-taker, or of any group undertaking of any relevant deposit-taker, from liability in connection with acts or omissions in relation to the deposit-taker or undertaking".
	That is an astonishing proposal. Of course the Government will say, "We don't intend to use it". But all of that makes the Bill thoroughly bogus.
	If I were challenging on the grounds of hybridity, I would say that as this Bill has clearly been designed, written and presented in a form purely to avoid being declared hybrid, and as the whole principle of hybridity is to give rights to individuals who are treated differently from others, the Bill should not be regarded as an obstacle to doing that.

Lord Lipsey: My Lords, it is always a great pleasure to follow the noble Lord, Lord Marlesford, in this House, as I once followed him on the staff of the Economist magazine, though I regret that, from his remarks this evening, he does not share that magazine's wise view that nationalisation is the right course for Northern Rock.
	I do not exactly welcome the Bill, because of the sad circumstances that have made it necessary, but I do strongly support it. That of course is the exact opposite of the position of the Conservative Party, which opposes it but has thoroughly enjoyed wallowing—like hippopotami—in the resulting mud, hoping that some of it will stick on the Government. The political arguments will go on, no doubt, as no doubt will the orgy of wise hindsight which has informed so many of the contributions from the Benches opposite in the course of today's debate. If I may, I should like to stand back for a moment and try to look at this whole episode from the point of view of an economist looking at how you handle financial crises and what you try to do.
	The rules about the handling of financial crises are pretty well agreed by every financial economist, as I hope the noble Lord, Lord Eatwell, who is to follow me, will agree. The first is that the authorities should inject into the system sufficient funds to prevent the contagion spreading—no Credit Anstalt here. Secondly, at the earliest feasible moment, the management of the organisation responsible for the disaster should be sacked, and preferably disgraced, pour decourager les autres. Thirdly, the shareholders should lose certainly most and probably all of their investment. According to those established criteria, has the handling of the Northern Rock debacle been a success or a failure? It is too early to be sure, but not too early to be reasonably reassured.
	So far as limiting the crisis is concerned, the Chancellor swiftly guaranteed all deposits. The Bank injected sufficient liquidity to ride the initial run on the bank and restore stability. Despite widespread rumours and fears, no other institution has followed Northern Rock down the pan. So far at least, the real economy has remained largely insulated from this crisis in the financial economy, though of course it remains to be seen if that continues. We are not in the 1930s, thank god.
	Secondly, the management—they are out. Ron Sandler, good luck to him, is in. Now of course, some people will complain, and I sympathise a bit, that the management left with pockets still stuffed with Northern Rock gold, and it would be a great thing if some of them chose to put some of that back into the communities that they have let down. Still, I knew Matt Ridley, the former chairman, slightly in the days when he was sticking to his last as a great scientific journalist—energetic, confident and, in the old sense of the word, gay. Then I saw the pictures in the newspaper of Matt Ridley at the height of the crisis, prematurely old, creased with worry, devastated. I have not asked him but I dare say that Mr Ridley would give back every penny he made out of Northern Rock for his whole tenure never to have happened. Or take Sir Derek Wanless, previously likely to be remembered by history for his authoritative report on the National Health Service, now to be remembered down the generations for having been chair of Northern Rock's risk committee. They and others have paid—rightly—a high price for their recklessness. It is only sad that their staff will have to pay a price, too.
	Thirdly, the shareholders. Everyone will have some sympathy with the small shareholders who have lost out; they are victims of a situation that they could not have reasonably been expected to predict. But let me draw a homely analogy. There have been all too frequent occasions when I have ventured into a betting shop and placed my bet on a carefully chosen horse, only for the beast to fall with the race at its mercy. I am sure that everybody in your Lordships' House would sympathise with me in that sad situation, but I do not think that any of you would expect the bookmaker to give me my money back. If Northern Rock had stellar luck and made stellar profits from the stellar risks it was taking, no one would say that the shareholders should not collect, any more than they would resent my collecting from my bookie on the occasions, alas only too rare, when it is my horse that wins because someone else's horse has fallen.
	It is not, however, the small shareholders who are making most of the noise at the moment. It has been the big institutional shareholders, many of whom bought their shares after the crisis in the hope of scavenging a profit from the corpse. For hypocrisy—for sheer, egregious hypocrisy—it would be hard to beat the hedge fund managers, some of whom have even been heard to murmur that they will take legal action for compensation. Compensation for what? For the infringement of their human rights. Where is this human right to make an unearned profit out of taxpayers? I hear some in this House complain that the Bill's scope is not drawn wide enough. If I consulted my heart and not my head, I would wish that it was wide enough to nationalise fiends like that without compensation and dispatch them to perform voluntary service in deprived Newcastle, whose corpse they look to feed off, until they learn sense and morality. That will not happen but I trust the courts will sweep aside any challenges to the compensation payable under the Bill.
	Ironies pepper the current debate. Over the last few days I have enjoyed watching the City, and, indeed, some in this House this afternoon, who have long preached the complete inefficiency of nationalised concerns. Now it seems they have got their knickers in a twist lest the newly nationalised Northern Rock proves to be an effective competitor. I have enjoyed—and give credit to—the Liberal Democrats for latching on to nationalisation as the right solution before the Government committed to it. And most of all, as a seasoned political observer, I have enjoyed witnessing the Conservative Party practising every sort of diversionary tactic to hide the fact that there is no alternative—no sensible alternative at any rate—from where we are to what the Government are doing.
	Let them have their fun. I remind them only that when it comes to the next general election the British public will have a choice to make about who they want in charge of the economy in difficult and dangerous times, in charge of their jobs, in charge of their mortgages, in charge of their savings. Is it to be men, or boys? I am confident that they, like the Government in this case, will make the right choice.

Viscount Eccles: My Lords, my noble friend, and wife, Lady Eccles and I live 12 miles from Darlington. We have always looked north to the admirable city of Newcastle. Our eldest daughter and her family live there. My noble friend Lady Eccles has been a Northern Rock depositor and our charitable endeavours are being greatly assisted by the Northern Rock Foundation. We deeply regret the failure of Northern Rock. Its failure is a sad and severe blow to the north-east. Nevertheless I still wonder why we are here today.
	In September, when the depositors were given their guarantee and the Bank of England made its first loan, Northern Rock became de facto in public ownership—100 per cent under public sector control. There was no reason not to decide upon a swift and final way forward. The Treasury guarantees will have been accompanied by stringent conditions, the Bank of England loans similarly; for example, as, presumably, a preferred creditor with a ban on asset disposals. Both the Treasury and the Bank of England will have supplanted the inadequate FSA by obtaining the right to information, to the full opening of Northern Rock's books and many other matters. No doubt before the second Bank of England tranche the question of whether Northern Rock controlled any off-balance-sheet assets would have been answered. Granite could have been unravelled if it was prudent to do so as a condition of any further Bank of England loan. All the leverage lay with the Treasury and the Bank of England. This due diligence was not a complicated matter, but was it done, and was it done in a timely fashion? It is difficult to be sure. Granite has arisen as a surprisingly last minute complication.
	Monday's Statement said:
	"I will publish shortly the framework agreement",
	as if to say there are no agreements now—an astonishing admission.
	Mortgage finance is not a complicated business, nor is the control of a company engaged in this business. It is the spread between the cost of borrowing and the flow of income from the mortgages that sets the level of profit. In this case one thing is certain. From each day when the Bank of England has made an additional loan to Northern Rock this spread has narrowed. Yet no information has been given to Parliament because no assessment of current trading is available. Parliament does not know what it is being asked to buy—a point made by many noble Lords. Instead, the Monday Statement directed us to remember the long term and promised a future sale, claiming that this assertion of success protected the taxpayer. That brings me to the key missing piece of information without which nobody could determine the least worst way forward. We have been told:
	"Throughout last autumn and from the start of this year, the Government wanted to test all the options".—[Official Report, 18/2/08; col. 24.]
	Just as mortgage finance is not a complicated matter, nor is the testing of options when a business is in deep trouble. There are only three. All require a quick and definite decision to be made. The first is to run the business through its troubles as a going concern because the cost will not be too great and success is reasonably assured. The second is to sell it and the third is to realise its assets while greatly restricting the volume of and terms for new business. The most significant step towards making the choice is the calculation of a break-up value. This calculation will control the likelihood of sale and inform the risk assessment of continuing to trade as a going concern. It would take about 10 days for competent advisers to provide a break-up valuation subject to a sensitivity analysis of, say, 5p in the pound either way. Presumably, this key piece of information has been available to the Treasury for months. Nevertheless, Parliament does not have it and so I will hazard a guess. In doing so I take no comfort from the letter which we have seen this afternoon which has a vague FSA assurance. Frankly, I do not believe it. My guess is that if such a valuation has been done, it would have come up with a figure of well below £1 in the pound, give or take 5p.
	I am not used to having my questions answered so I will confine myself to a short question with three parts. Have there been calculations of break-up value? When were they made? What did they reveal as the estimated value of Northern Rock's net assets?
	Now we are presented with a sketch of the way forward. No business plan yet exists, which is astonishing given the leverage granted by Northern Rock's financing needs of five months ago. If my guesstimate on the net asset value being well below £1 in the pound is anywhere near right, it is no wonder that the Treasury could not obtain a satisfactory deal from either the virtual reality world of Branson or that of the Northern Rock directors. The sale exercise has been just a waste of time and money. On the other hand, if the FSA turns out to be right, it should have been no problem to sell.
	My final question is, what would be the impact on the economy of the continuance of Northern Rock or its disappearance over, say, the next five years? It would be marginal. No fewer houses would be bought and sold. No fewer mortgages would be negotiated. The competition would need more branch offices, some of them in Newcastle. The total of employment would not be significantly affected—only, and regrettably, its distribution.
	We need now to recreate the professionalism and the morale of the Treasury and the Bank of England. It must be difficult to work for this Government, who mix such a powerful brew of spin with such a low level of accurate information and timely decision-making. For the whole affair could have been settled in a month to six weeks, and by now Northern Rock would be operating at a much lower level in an extended run-off of its assets. Any thought of its eventual sale to ensure its continuance is for the birds, if they still fly in 2018.

Lord Eatwell: My Lords, I will address part of the wider context of recent events, particularly the events surrounding Northern Rock. Most of us realise that we are now in the throes—perhaps the very early throes—of a major international financial crisis, which will ensure that the future of credit and of all mortgage businesses is radically different from how things are today. How different it is not yet possible to say, but what we can say is that the market for structured credit has virtually collapsed and there is at present no prospect of revival. If and when it does revive, it will look very different from how it looked, say, 12 months ago. We can also say that the regulation of the credit markets will be different. The role of credit ratings agencies will, I hope, be different and it is likely that the structure of the products themselves will be different. All that means that there will be fundamental changes in the way in which the UK mortgage market operates. The changes are likely to be forced on our banks and building societies over a relatively short time horizon of, say, two years.
	Given the international crisis, it is obvious that the business model espoused in the past by Northern Rock is no longer viable. It is also obvious that the action being taken by the Government in bringing Northern Rock into public ownership is not only right but the only possible action today, dictated by force majeure. Not only should that be obvious in the context of today's events, but it is also the lesson of history. It is the nature of banking that there exists a relationship of mutual dependency between the major banks and the state. As the United States Government learnt in 1984 in the case of Continental Illinois, large banks are "too big to fail", for their failure would pose too great a risk to the banking system as a whole. This is as true in the UK today as it was in the US 24 years ago. All the large retail banks operating in this country today are too big to fail. Hence, when credit markets seized up around the world, it was obviously right that the authorities should seek to ensure that Northern Rock did not collapse. If the authorities had not acted as they did in September, the consequences for UK financial markets would have been disastrous.
	We know that the Government then gave the private sector the opportunity to develop plans for the absorption of Northern Rock by other banks. The noble Lord, Lord Marland, who participated in that process, told us that the Government gave insufficient time—not too much time but insufficient time. Again, doing that was absolutely right, as evidenced by rescue operations in the past—for example, the Bank of England operations in the secondary banking crisis in the 1980s. It should also be remembered that in September no one, except perhaps my noble friend Lord Desai, could be sure that the crisis in credit markets would be as severe or persistent as we now know it to be. Once it became clear that private sector institutions were unable to absorb Northern Rock, taking it into public ownership was again clearly the right thing to do.
	In this context, the solution proposed by the noble Lord, Lord Lawson of Blaby—the strategy of working out the book, as I understand it—is available to Mr Sandler if he wishes to pursue it. If that secures the best deal for the taxpayer, I am sure that Mr Sandler will pursue it. However, it would be quite wrong for the Government to tie Mr Sandler's hands in that respect in the way that the noble Lord, Lord Lawson, wishes to do. Instead, Mr Sandler should simply have the instruction to secure the best deal for the taxpayer within the constraints placed on him by the competition authorities. It is important for the House to realise that the solution proposed by the noble Lord, Lord Lawson, is the same as the Government's, plus a particular restriction placed on the management of Northern Rock.

Lord Lawson of Blaby: My Lords, first, the difference is very important and significant, for reasons that I indicated in my speech and which I will not go over again. Secondly, it is not just up to Mr Sandler to decide what is in the taxpayers' best interests; it is the responsibility of the Government and they cannot run away from that.

Lord Eatwell: My Lords, I entirely agree with the noble Lord, which is why I suggested that the Government should instruct Mr Sandler to secure the best deal possible for the taxpayer in the context provided by the competition authorities.
	There were two other alternatives: administration, a policy for a fire sale of assets and the ruin of depositors; or totally disproportionate subsidies to the private sector consortia. I do not think that either alternative would recommend itself to anyone who has thought through the consequences.
	As I said, we must consider the measures in this Bill in the context of what is happening in world financial markets. As happens in financial crises, recent events have been unprecedented and they have exposed severe deficiencies in the business models of major financial institutions throughout the world. It is interesting to note that, while there have been major losses at a number of well known international banks, as yet Northern Rock has not lost anything. Although there are major crises, in the context of the impact of the changing financial markets, Northern Rock is not unique.
	These events have exposed deficiencies in the legal framework that is available to Her Majesty's Government to deal with those events and their consequences. As the Government have made clear, the measures enacted in this Bill are temporary, specifically designed to deal with the threats that the Northern Rock problem poses to the UK financial system. As we have heard from a number of speakers, the Government are consulting on what permanent changes should be made to enable the better management of financial crises, in particular how assistance should be better provided to financial institutions in distress and how institutions may be more smoothly transferred into and out of public ownership.
	What has been extraordinary, as I have listened to speakers opposite, has been the impression that taking Northern Rock into public ownership is a threat to our financial system and to modern capitalism as we know it. Yet this is exactly the framework that already exists in the United States, which was created following the Continental Illinois case that I referred to. A new framework for taking institutions into public ownership when they need to be, in the face of a financial crisis, and then selling them back to the private sector will need to be formulated on a European Union basis so that its provisions are consistent with competition legislation.
	Much has been said about the impact of this Bill on competition in UK banking and much of what has been said has been wildly exaggerated. Since all major banks and building societies in this country are too big to fail, the extra security offered to Northern Rock depositors is far less than has been suggested by many noble Lords opposite. This Bill is a vital, positive and welcome measure, because it provides a framework within which Northern Rock can be reconstructed in line with evolving market circumstances. What the business model of Northern Rock, and indeed of any other British bank or building society, will look like in two years' time is difficult to predict. Business models are going to change because of the way in which the credit markets have changed.
	The environment in which current business models were developed has gone, possibly for ever, and it is therefore vital that Mr Sandler, the management team at Northern Rock and the regulatory authorities are possessed of a legal environment in which a new business model can be developed for the future and for the stability of UK financial markets. That is why this Bill must be passed quickly to provide the certainty that markets crave and the legal framework in which the new team at Northern Rock can get on with the job. It is also why new measures should, after consultation, be brought forward as soon as possible to create a more appropriate framework for the relationship of mutual dependence that always exists between the state and the banking industry.

Lord Selsdon: My Lords, it is extraordinarily difficult for me to follow the enormous quantity and quality of privy counsellors who have spoken, baying like hounds on the leash looking for a fox sitting gently on the Benches opposite. I was a banker for many years and have realised that in front of me today we have a lot of amateur bankers—by "amateur" I mean someone who loves their subject—trying to make political points.
	I will start at my beginning. I have one thing in common with the new executive chairman of Northern Rock—asbestos. Lloyd's was bankrupted because of asbestos, but I was in the asbestos world, selling it and other materials in the north-east of England for years. It never seemed to do me any harm in the end. That was way, way back, but I wanted to be in industry. I wanted to make things. I wanted to create added value. I did not want to go into the City and be a blue button or a bell bottom, or whatever they were called in those days. My industry thought that I needed knocking down a peg or two, so I was sent to the north-east as a rep, because the rep there had had three hernia operations. In fact, he had only had two, but he had disappeared into the sunset. I was given the patch from Thirsk to Berwick.
	I lived for a while in Hesketh and then found that in the winter if I went to the Park Hotel in Tynemouth and offered to work in the bar, I would be given the bridal suite to keep it warm. I got to love Newcastle—I was later allowed to pronounce it with a short "a". I watched around me as industry collapsed. I watched those empty yards where there was no stock. I watched the cranes rusting in the shipyards and I realised that industry had gone. I managed to win an order for Blyth colliery and for the first time went down a mine. I was allowed to design a piece for the top of the eaves, called a finial—it was called the Mitchell-Thomson finial after my name, before my father died. I was proud and I loved that part of the world.
	I watched as suddenly industry collapsed and unemployment rose. A proud people found that they were searching for something new. That is what led me to stand on those Benches—as did the noble Earl, Lord Ferrers—when the nationalisation of shipbuilding took place. For three nights I stood there to try to prevent the Government from nationalising and destroying an industry, but that is what happened. It was not that anything had been done wrong.
	The second element in my life came when a committee that I served on with Lord Aldington was looking at what would happen when North Sea oil ran out. North Sea oil turned up and helped the north-east of England, not just Scotland. We said, "Well, if we don't make anything, we won't have anything to sell when North Sea oil runs out". I realised pretty quickly that nothing was going to be made and I joined the financial world as a banker for many years. There, I learnt certain things. I worked with Midland Bank, which came from the Midlands. Barclays came from East Anglia. The four great clearing banks had certain rules. They had, as the Chancellor will know, certain equity-to-debt ratios supervised scrupulously by the Bank of England. You could not lend more than 17 to 20 times more share capital than you had reserves. That meant that, if you lost £1 million, you had to reduce your lending book by £20 million.
	I was in the merchant banking side. I was told that our assets went up and down in the lift every day, but those of the clearing banks were undoubted. Alongside that came these institutions called the building societies or friendly societies, which started first at the Golden Cross Inn in Birmingham in 1751. By 1860 there were 750 friendly societies, or building societies, in London, and 2,000 throughout the country. In those days, people did not use banks. Even when I joined the banking world, only 30 per cent of people had bank accounts. The rest used building societies, which were often terminal societies. That meant that, when everyone had obtained a house, the society closed down.
	Then the problem came. In 10 years—no, even 100 years—there were eight building society Bills, but people forgot the principle of a building society, which was to help a family to get a home. People put their money in and gradually they raised money to be able to buy a home. Homes were the most important things in the land, as they still are today. But gradually mistakes were made. My bank, the Midland Bank, made a mistake by buying a bank on the west coast of America that was operating in what you might call the sub-prime market. It was accused of "red lining"—of not lending to certain ethnic minority groups. Gradually we started to fail.
	At that time the building societies were regarded as competition by the clearing banks. Noble Lords will know that, after the war, possibly 20 building societies merged in one form or another and then became banks or were absorbed by banks. That was not because the banks wanted any more branches. They suddenly stopped being banks and sold products. Now they sell them by telephone. You dial and press "1" and you ask to speak to someone and you cannot get a name; you then find that the name is often Sharon, but it is a different Sharon every three hours, and you cannot speak to anyone. We have in some way destroyed part of our banking system.
	I had always liked the building societies, but gradually they, too, got caught up by the carpetbaggers—I was going to call the Government by that name. Noble Lords may remember that a carpetbagger was someone who came along and said, "Wait a moment, I have a way of making short-term money. I will take a deposit in a building society and then get some shares, and then make them de-whatever and make a quick buck". That is what happened. Gradually all the big building societies ended up being taken over by banks—and one of the 10 biggest was Northern Rock, which was still independent.
	Some 60 building societies remain, which together have an asset share of some £300 billion. However, that is only three times the level of the problem with Northern Rock. You could see it happening because people lost the idea of equity-to-debt ratios. They looked at the securitisation of debt at sub-prime levels and looked at the cash flow that came in from the poor depositor who was actually saving and who was a genuine person who may have been pushed on his house because of inflation and who then borrowed more. A mistake was made by the management, but above all the mistakes were made by the supervisory authorities. They should have known.
	In my day we did not dare to move without the Bank of England. You would "walk across the road", as was said, perhaps up to St Paul's or down to the Bank itself, and you would sit, often with just one person—not four people sitting in a box—and you would ask for advice. It might be about exchange control; you would then get that advice and learn fairly quickly who was acceptable and who was not. The language that went around was, "We don't lunch with so and so any more", which meant that they were in financial difficulties, or, "We certainly don't call to see them, and they should not be allowed to call to see us". Then, one day, one of those people called to see me. He was the president of the National Bank of Cuba and the Finance Minister. I was going to say that I always got the bum end of the steer, but it was not quite that bad. Leon was a very nice man; when he came in, he said, "I feel so sorry. You see, we defaulted once with Midland Bank—32 years ago, for half an hour". He apologised for that because many people had never defaulted.
	The problem that we have today is that the building societies have tried to be banks when they were not capable of that and the banks were interested only in trying to lend as much money as possible to people who could not afford to pay for it. We are now in that crisis where our manufacturing and trading industries have been replaced by financial services. Is that the future of this country? We are relying on so much international money that it will disappear if we start to put pressure—either personal or other pressure—on people who bring their money here.
	What do we have left? We have one great thing: this institution has been solid and sound in this debate. I feel sorry for the Government. I know what I would do about Northern Rock, but I would not like to do it. Normally, someone would produce a prospectus, maybe in six or eight drafts. Instead of being pushed around by the Chief Whips of each party on red Benches, that prospectus would be delivered by motor-bicyclists at three or four or five o'clock in the morning—this was before we had computers. You would have checked everything out and been made to sign off every page, which other people would then sign on top of you; there would be eight signatures initialled. If you made a mistake between a comma and a full stop in a letter of credit, that letter could be rejected. That was called professional banking; today, it seems to have disappeared.

Lord Oakeshott of Seagrove Bay: My Lords, I declare an interest as a pension fund manager for the past 32 years. I am not sure whether the noble Lord, Lord Selsdon, would call me an amateur. I suppose that I have also borrowed £100 million or so in my time, but I hope that the noble Lord, Lord Selsdon, would still lunch with me as, so far, I have paid all of it back on time. The serious point is that the money I borrowed has been done on the balance sheet of the companies that I have run, where everybody understood what the liabilities were, and not through something called Granite or dolomite, or any other artificial vehicle designed, in many cases, to deceive or to disguise commercial reality.
	Four months ago, I complained in this House about the pernicious 125 per cent mortgages being pumped out by Northern Rock. My honourable friend Vince Cable challenged the Chancellor directly on that, and the Chancellor replied:
	"The decisions taken by Northern Rock in respect of its business model and its lending—whether generally or to the noble Lord Oakeshott ... are a matter for the bank and not for any Minister ... The bank belongs to its shareholders".—[Official Report, Commons, 11/10/07; col. 470.]
	Not any more, it does not. That defence of dodgy lending just will not wash a moment longer.
	It is fair to say that this has been a sombre debate. Several of your Lordships—the noble Lords, Lord Lang of Monkton, Lord Stewartby and Lord Forsyth—asked: Why the rush? I have some sympathy with that. After all, it has taken five months to get to this point. We saw chaotic scenes earlier, with letters to the Liberal Democrats that we have not had; I also apologise to the House for my noble friend and I having to go out briefly for meetings with Ministers. It has been a particularly rushed process, but having got to where we are it is clearly important that we go ahead—to debate the Bill properly and thoroughly, to amend it tomorrow, I hope, and to get it done.
	The noble Lords, Lord Trimble and Lord Marland—and, I think, the noble Lord, Lord Forsyth—properly raised the question of the Lloyds TSB approach. That was an extremely serious approach, despite some of the spin from the Government, and it obviously should have been taken much more seriously than it was. My information comes from a director of Lloyds bank, so unless he is making it up it was well known in the City that that approach was extremely serious; it was a grave mistake to turn it down in such a way.
	The noble Lord, Lord Goodhart, spoke eloquently and with great authority, as your Lordships would expect, on behalf of his committee. It is unusual for the chairman to do so but he explained why it was necessary to do that; we are obviously considering carefully what he has said, as I know that the Government have, and I hope that there will be some progress on that tomorrow.
	I thought that the noble Lord, Lord Bilimoria, highlighted extremely well the reckless expansion of Northern Rock. As he pointed out, it was remarkable that the Financial Services Authority missed it. Part of the reason—this has perhaps not come out yet, but it will when this appalling scandal is fully investigated—is that Mr John Tiner, the outgoing chief executive and the man who so badly let down the people who suffered in the split capital investment trust scandal, retired in the early summer. I suspect that his attention was wandering; he may have been rather demob happy. That was just before Northern Rock ran out of cash.
	One or two noble Lords raised the question of what will be the compensation payable and what will be the share price for those calculations. I fear that, whoever the Government appoint as a valuer, noble Lords should not waste much time on that. It is quite clear when you read the Bill that there can be only one outcome: a big fat zero. A bank that runs out of cash with no assumption of support can only be worthless. That obviously has serious implications for the Northern Rock Foundation, as my noble friend Lord Shutt pointed out; I fear that the shares that it will be converted into will have no value.
	I have a great deal of sympathy with the points made by noble Lords opposite, especially the noble Lords, Lord Desai and Lord Lipsey, about holding the management to account. I am bound to say that if we were in America, we would all be greatly cheered up by seeing marshals drag Mr Applegarth out of his flash office in handcuffs. Serious questions are still to be asked as to whether he, in particular, misled shareholders, auditors and the Financial Services Authority. I hope that that will be investigated seriously.
	The noble Lords, Lord Naseby, Lord Marland and Lord Ryder, in their different ways said that it was a shame that there were not more experienced City bankers involved in Northern Rock. The noble Lord, Lord Naseby, in particular, raised questions about Mr Sandler's banking record. Obviously, we wish him well, but he is not a career banker any more than his colleague—they are from insurance and other areas. Only the Treasury could manage to find two non-dom, non-bankers to run this big British bank.
	I agree with much of what the noble Lord, Lord Eatwell, said in a very interesting discussion of the major financial crisis that we are now in. I just wonder, if it is so obvious now under force majeure that the bank has to be nationalised, whether it was not obvious two or three months ago. I am surprised that it has taken quite that long. I was also amazed at his comment that Northern Rock has not lost anything. No bank loses anything if it is being propped up by the Government and before its accounts have come out. I do not think that the Northern Rock year-end accounts for December will make very happy reading. We are keen and will be pressing the Government hard to ensure that they appear very shortly. They should have appeared on 30 January, but we have seen no sign of them yet.
	Can the Minister confirm in his winding-up speech whether the audit of Northern Rock will be carried out by the same auditors? There must be serious question marks about their performance in failing to spot the problems before. If it will be, that will not be satisfactory and I ask that a new firm of auditors be appointed.
	There are very serious questions about the Northern Rock balance sheet. The June interim figures last year, which showed a tier 1 ratio of 11.3 per cent—a very healthy tier 1 ratio—were based on very optimistic assumptions about the bank's exposure to collateralised debt obligations and other funny paper of that sort. From what we now know and how the risk weightings have changed, the risk weighting under Bar rules, if those pieces of paper are written down, goes from 20 per cent if they are triple A to 1,250 per cent if they are single B. Leading banking analysts in the City have stated that on that basis, the tier 1 ratio last June was below the regulatory minimum. Again, there are serious questions for the Financial Services Authority as to how carefully it looked underneath the figures.
	I turn to the letter to my honourable friend Vincent Cable, which we have received during the course of the debate and which we have obviously been having to study as we listen to the speeches. One question immediately strikes one: has Mr Alistair Darling's mortgage been packaged out and sold off to Granite; was it adjudged higher quality or is it still stuck with taxpayers?
	More seriously, the letter repeats the Chancellor's assertion:
	"FSA advises that Northern Rock's mortgage book is of good quality".
	What on earth is the evidence for that? How do they know; how have they checked it? If the FSA had done its job properly we would not be having this debate today. As I have said, an immediate independent audit of the Northern Rock loan book must be carried out by forensic accountants with nothing to cover up or hide.
	We only have to look at the numbers and the massive expansion of Northern Rock at the top of the market and the fact that it was lending on terms that most of its competitors regarded as suicidal in the last few months to believe that there will be serious problems in the loan book. How could Northern Rock have accumulated the £8 billion of unsecured loans that we know it has if it was sticking to prudent lending policies?
	The letter takes an optimistic view of Northern Rock's commitments to Granite. In particular it seems to give the impression that the new management of Northern Rock will be able to use Granite as it suits them and assess its commercial relationship with Granite going forward. It is not as simple as that: it is a question of contractual arrangements. I have the agreement here: it is 411 pages of what Northern Rock can and cannot do.
	The Government have also given the impression that there is no problem; we do not have to put further mortgages into Granite. What happens if the Northern Rock loan book runs down, as it is likely to do, as borrowers who have had short-term mortgages on these uncommercial rates as those fixes run out and as they remortgage away? Many of those mortgages will be repaid, many of them within Granite, so surely Northern Rock will have to take from the main pool of high quality mortgages if it can find them to replenish that. There are serious questions to answer on the letter.
	What really matters now is to minimise the taxpayers' losses. It is important that the business going forward is run on a prudent as well as a commercial basis. The Alliance and Leicester today said:
	"We will slow down our mortgage lending during this year. We will maintain our current strategy on doing only high-quality business with no self-certification, no subprime, very little buy-to-let and not lending any more than 90% of loan to value. We will not be out there behaving aggressively".
	If only Northern Rock had been adopting those policies, not just up to when it got into difficulties but in the past five months when it is effectively being controlled by the Government, we would not be in the position that we are in today.
	I fear that the taxpayer is going to end up stuck at the bottom of a black hole involving probably somewhere between £5 billion and £10 billion. I hope that I am wrong, but I do not believe that I am. House prices have a long way to fall, and the overriding objective for Northern Rock must be damage limitation: to keep those losses and the taxpayers' losses to a minimum.

Lord De Mauley: My Lords, I thank the Minister for introducing the Bill and I echo the sympathy for him that one or two of my colleagues have expressed. I will not thank him for going through the Bill in detail because he did not and I cannot say that I disagree with his decision on that point, but I thank him for at least flirting with some of the key issues. I also thank all other noble Lords who have spoken. My noble friend Lord Lawson explained why we on these Benches believe that the Government's intended course of action is not the best solution: he said the second worst. He also explained his grave concerns about the FSA and about banking supervision. My noble friends Lord Trimble, Lord Ryder and Lord Marlesford and my noble and learned friend Lord Lyell, as well as the noble Lords, Lord Bilimoria and Lord Oakeshott, all amplified those concerns and offered the Government valuable advice, which I hope they will heed.
	My noble friends who have spoken before me have made very clear the Conservatives' opposition to the Government's actions in respect of Northern Rock. The Government's position has been decimated by the voices of experience today. My experience is much more limited, but I can say that, in 16 years of advising British and foreign banks on the acquisition and disposal of financial businesses and portfolios of assets, not once have I seen a better outcome achieved by delaying a difficult decision, as the Government have been doing. It is not better for staff, for customers, or for the shareholder, who in this case is about to be the poor old taxpayer.
	Any soldier knows that sometimes a bad decision is better than no decision at all. After five months of twisting and turning, the Government have decided on this course, and we have very reluctantly concluded that our time will be best used in trying to improve what we consider to be the flawed Bill that they have introduced to achieve it.
	The more I try to make sense of the Bill and its relationship to the Government's stated policy, the less coherence I can see in it. It is in essence two different Bills, addressing two different issues. Our amendments will seek to untangle some of this mess and impose some clarity and consistency on the provisions that we are considering. The first issue is the nationalisation of Northern Rock. After five months of dithering, we have apparently arrived at a full blown and immediate crisis, to which the only solution is emergency legislation.
	My earlier comments about delaying difficult decisions notwithstanding, proper scrutiny is, as many noble Lords have said, essential, and I ask the Minister again, as I did on Monday and as my noble friends Lord Stewartby and Lord Forsyth and my noble and learned friend Lord Lyell did today, what the rush is. Where is the emergency that necessitates the nationalisation of Northern Rock by the end of the week rather than by the end of the month? The Government have demanded that Parliament suspend its usual intervals and accept that the Bill be subject to a mere three days of scrutiny in total by both Houses, and propose that there be no scrutiny of the orders made under it.
	Your Lordships have quite rightly expressed their concerns about this, as did my honourable friends in another place yesterday. As my noble friend Lord Marland said this evening, the Government have clearly been expecting nationalisation for some time. The Bill was not drafted overnight; nor were the draft orders that we have been shown. The Government have tried to convince us in their Memorandum to the Delegated Powers and Regulatory Reform Committee that a decision to nationalise a bank is likely to need to be taken urgently and at short notice, possibly within days. The DPRRC report shows that the DPRRC is as unconvinced as I am, and we are all grateful to the noble Lord, Lord Goodhart, for his helpful contribution to the debate.
	I draw your Lordships' attention to the committee's warning that even if, following the negative procedure that the Government currently propose, Parliament were to annul a transfer order under Clauses 3 or 6 after the Government have implemented it, the order cannot be unmade. The order-making powers in the Bill therefore in effect exclude Parliament from any role at all in the nationalisation of Northern Rock or of any other bank or building society that the Government might choose in the next year.
	There is now a firmly established tradition that the advice of your Lordships' committee on delegated powers is heeded by government, and although we understand that the Minister had short notice of the report, he has undertaken to resolve the situation, and we look to him to table amendments implementing all the committee's recommendations. If he does not do so, I must tell him that we will press our amendments on the matter in Committee tomorrow.
	I said earlier that we are faced today by two different Bills. We have here not just a Northern Rock nationalisation Bill. The second function and the second issue of this Bill is, as my noble friend Lord Bell said, the effect of the Government's economic incompetence and mismanagement. They claim—my noble friend Lord Higgins referred to this—that we must also protect against a more general systemic instability in the financial system. The Government have occasionally tried to reassure your Lordships that this Bill extends only beyond the simple nationalisation of Northern Rock because of the necessity of avoiding Hybrid Bill procedures: I think that they mean the Private and Hybrid Bill procedures. The Minister corrected himself on Monday categorically to state that the activating provisions in this Bill will not be triggered by any other financial crisis in the next 12 months. The Chancellor has furthermore stated that the Government have at this time no intention of applying the provisions to any other institution than Northern Rock.
	Yet, this Bill goes far beyond what would be necessary to avoid triggering the time-consuming Private and Hybrid Bill procedures. In passing, I point out that the British Leyland Act 1975 and the Rolls-Royce (Purchase) Act 1971 managed to avoid those procedures without extensive, unrelated provisions and enormous scope. My noble friend Lord Ferrers also referred to his experience on the Aircraft and Shipbuilding Industries Act.
	Clause 2(2)(a) specifically anticipates the nationalisation of a bank or building society because of a potential "threat to the stability" of the UK financial system. But the Prime Minister this afternoon claimed that in the autumn the Government took successful steps to prevent Northern Rock from causing systemic failure. So why do the Government need these new powers now?
	The noble Lord, Lord Newby, referred to one way in which the bank can be taken advantage of by customers. I fear that this Bill is a green light for more sophisticated skulduggery by unscrupulous investors to identify a target financial institution, to sell its stock short and then to seek to cause financial instability in the certain knowledge that the Government will step in and bail out that target. The Government are creating a potential speculators' paradise. They are even trying to put into this Bill a wholly unrelated power to provide financial assistance to building societies under Clause 11. I cannot see what that has to do with Northern Rock or the avoidance of hybridity.
	I am glad to see that the Delegated Powers Committee recommends that this "unsunsetted" clause should come out of the Bill or at least be hedged about with the tightest possible restrictions. If the Government do not do so, we will therefore press amendments to remove the worst of these unnecessary provisions and will attempt to return the Bill to something closer to what the Government led Parliament and the public to expect.
	No acceptable justification has been offered by the Government for this Bill existing for a whole year. If they need it for the nationalisation of another financial institution, they should come back to Parliament. We will propose an amendment to reduce the sunset clause to a single month, which would be more than enough for the nationalisation of Northern Rock. For the same reason, we will propose an amendment to remove building societies from the Bill's scope. If the Government are sincere about the overwhelming need for this Bill to be rushed through Parliament, the necessary orders can and should be made within a month.
	I have spoken about the unnecessary provisions in the Bill: I should now like to turn to the necessary provisions that are not in the Bill. My honourable friend the Member for Tatton in another place yesterday pointed out, as did my noble friend Lord Forsyth today, that we do not know what the taxpayers are buying, how much they are buying it for, how long they will own it and what they will do with it while they have it. What is most concerning is that not only are your Lordships in the dark as to these matters but that it appears that the Government are, as my noble friend Lord Stewartby said, equally ignorant.
	My noble friend Lord Lawson asked what the auditors had reported to the FSA and we look forward to hearing the Minister's answer to that. The noble Lord, Lord Oakeshott, also asked about auditors. The Government are committing the taxpayer to a compensation package, despite the strong feelings of the noble Lord, Lord Lipsey, on the matter, that could hit nearly £2 billion for an asset book that has not been independently assessed. They remain unable to explain how they will square the circle and continue what they call "business as usual" when the business model was what precipitated the crisis in the first place.
	Furthermore, despite what the Minister said earlier, it is not at all clear how they will prevent Northern Rock taking unfair advantage of its access to cheap Government money, while continuing to compete vigorously. I am afraid that we on these Benches are deeply sceptical of the touching assurances of the noble Baroness, Lady Kingsmill, that we simply do not need to worry about competition.
	The confusion is summed up in the furore to which the Minister referred, which is now breaking as the public become aware of the existence of the Granite securitisation vehicle. As my noble friend Lord Lawson said, it is becoming clear that for all the Government's reassurances that Northern Rock is a solvent bank with a good asset book, the best assets are, as my noble friend Lord Higgins said, locked away and will not, as the noble Lord, Lord Newby, said, become available to the taxpayer.
	Notwithstanding the Minister's strenuous assertions and the letter to the Liberal Democrats—which, incidentally, I, like my noble friend Lord Trimble, find unconvincing—the Government are between a rock, as my noble friend Lord Forsyth said, and a hard place on this one. It appears significantly to undermine the entire process. As the noble Lord, Lord Oakeshott, said, the terms of the contract are critical. To add insult to injury, as several noble Lords have mentioned, the Government even intend to perpetuate this fog of confusion by exempting the nationalisation from public scrutiny through the Freedom of Information Act. We have therefore tabled amendments to shed light on these matters.
	The Minister referred to widely expressed concerns about competition. We will have to think carefully about what he said. If we are not satisfied, we will propose an amendment to establish a watching brief on how the nationalised bank impacts on a highly competitive financial market. I welcome the comments of the noble Lord, Lord Newby, on this. We will seek to ensure that there will be no exemption from the Freedom of Information Act. We will also propose an amendment extending the recommendations of the Sharman report to financial institutions nationalised under this Bill.
	The management of Northern Rock must be subject to greater parliamentary scrutiny, both in its business strategy, as several noble Lords have said, and in its relationship to Government. The Government's assurances of an arm's-length relationship with the board, as my noble friend Lord Naseby said, are also starting to look somewhat thin with the recent appointment of the Prime Minister's former Principal Private Secretary to the board.
	There is no point in adding to the recriminations. The blunt truth is that come tomorrow night the British taxpayer will have chanced the odd £100 billion, give or take £10 billion, to own a crippled bank with a loan book that was not saleable to the private sector, even with Treasury money, and which is tied to a £40 billion offshore trust in Jersey, about which we still know all too little. It is now apparently official Labour policy to be the first Government to be big in Jersey trusts and 125 per cent mortgages. Nationalisation, sub-prime loans, offshore finance and the use of a small charity's name to raise cash on Wall Street: was ever such a cocktail offered to the taxpayer?
	When the Minister sums up, can he tell us whether, if Granite proves unable to repay its short-term loans when they fall due, there will be any charge on Northern Rock to meet those payments? Yes or no? The Minister used the word "temporary" several times in his opening speech. What does it mean? Some of us think it might be a rather long and bumpy time.
	The bottom line is that a large number of serious practical and concerns have been raised on all Benches in the House this evening. Practical and sensible amendments have been put forward. Will the Government now give serious consideration to any or all of those amendments? Indeed, are they now ready to accept them? Or is this debate and this whole process no more than a charade?
	This whole episode has been a saga of corporate arrogance and greed, and financial and political bungling. Let us not compound this by railroading through, unchanged, a Bill no one outside the Prime Minister's narrow circle saw before Monday evening. I hope the Minister will not say that the Government have got things 100 per cent right in their first draft, and therefore cannot brook any amendment that noble Lords, in their wisdom, might suggest. That would be a negation not only of parliamentary government but of common sense.

Lord Davies of Oldham: My Lords, I am grateful to all noble Lords who have spoken in this excellent debate and I accept, in the spirit in which it is intended, the sympathy for my position expressed, most recently by the noble Lord, Lord De Mauley, and by the noble Earl, Lord Ferrers. Indeed, I think that the noble Lord, Lord Forsyth, sympathised with the position I am in. The sympathy is somewhat wasted because most of those who voiced it have felt the heat of the kitchen themselves and therefore know only too well that that is what Ministers are paid to respond to, and I intend to do so. With a Bill of this kind, the issues are marginally more rushed than is usual with our legislation, and we are all having to adjust to the fact that while I am responding to the Second Reading speeches this evening, inevitably we will return to many of these points tomorrow morning when we deal with the Committee stage. I shall come to the detailed points, but first let us get down to the fundamentals.
	I start by making the obvious point that no one needs much sympathy at this Dispatch Box when they are supported by the speeches of my noble friends, whom I congratulate on the high level of their contributions and their constructive approach to the issues. That is a contrast with all the speeches from the Official Opposition. They have been mightily critical of the actions of the Government without themselves articulating any conceivable strategy for how to deal with this problem, and that is the biggest contrast. My noble friend Lord Lipsey summed it up by saying that all noble Lords on my side of the House and, I hope, many others will support this legislation while regretting its necessity, because of course it reflects dire circumstances. Speakers for the Official Opposition rather like the mud that is around and think it may well stick to the Government. They have indicated that they intend largely to oppose the legislation tomorrow.
	I want to emphasise that the Government have taken the right decision to take Northern Rock into a period of temporary public ownership. The noble Lord, Lord Bell, was not the only noble Lord to suggest that what the Government are doing is lurching back to the joys of the early 1980s with their enthusiasm for Clause 4 and widespread nationalisation. I believe that the noble Lord, Lord Marland, indicated much the same. Both noble Lords have failed to take into account the criticism expressed by most other noble Lords on their Benches, which has been to ask why the Government have been "dithering"—that was the word they used—by trying to find a private sector solution over the past months. At least the Liberal Democrat Benches have been consistent in their position. Most noble Lords on the Opposition Benches have argued that point when of course it was clear that what the Government were seeking to do was indeed to obtain a private solution to this problem. The noble Lord, Lord Best, has left it a bit late to try to argue the case both ways, if that is what he is trying to do.

Lord Best: My Lords, I am not being argumentative, but I said specifically that this is not a return to the nationalisation policy of the 1980s.

Lord Davies of Oldham: My Lords, I am glad to see that the noble Lord is not taking us that far back, but he did emphasise that the Government are bent on nationalisation without the obvious caveat that this is a position we have reached after making every effort to find a solution in the private sector.
	This is the right decision because it meets the principles set out by the Chancellor last year, ones that we have stuck to consistently ever since; namely, maintaining financial stability, protecting depositors and protecting the taxpayer. Of course we will go into detail tomorrow in Committee, but noble Lords opposite may rue the day when they were cavalier about the necessity for government action in this area and suggested that Northern Rock could readily have gone to the wall and that there would be no potential serious ramifications for the financial system.
	On the other side, it is alleged that the Government were committed to this strategy because of their affection for northern England, where Northern Rock is located. Not so. Principle dictated the Government's actions, not narrowly conceived political advantage, which has been ascribed to the Government by noble Lords opposite. In circumstances of widespread international financial turbulence, which has brought low a number of institutions elsewhere with severe losses, the danger was and to a certain extent is present that that turbulence can bring institutions great problems.
	That is why the Bill deals with Northern Rock—it needs to deal with Northern Rock on the issue of principle—but it is also why the Bill is wider. It is why the Bill is required, after due consultation and the fullest possible parliamentary discussion about the legislation needed for the regulation of the banking system and the structures that we need in a rapidly changing environment. My noble friend Lord Eatwell spelt out exactly why we had to keep legislation up with the times in such rapidly changing financial and economic circumstances. It will take time to reach that position. As we have indicated, of course we are bent on legislation that will need the fullest consultation and consideration, but in the mean time we need defences against those forces that could last beyond Northern Rock and could provide real difficulties for the financial system. Other countries are facing those difficulties, which is why they are following a range of different strategies.

Lord Forsyth of Drumlean: My Lords, I apologise for interrupting the Minister, but was he implying that the powers in the Bill would be used for other institutions? I took that to be the meaning of what he said when he spoke of "forces" and "difficulties" and said that other institutions might be affected. I thought that it had been made clear that the Bill was for Northern Rock and for Northern Rock alone.

Lord Davies of Oldham: My Lords, we will act only with regard to Northern Rock under the legislation, as the noble Lord will recognise. The reason why the Bill has a sunset clause is that, although the powers need to be obtained by the Government against unforeseen eventualities, we will see those powers superseded by the proper and necessary banking regulation legislation that we intend to introduce later in the year. In the mean time, we need necessary defences against circumstances that none of us can foresee but that we all recognise as being troubled. It is merely wisdom on the part of the Government to use the occasion to take the necessary powers in the Bill, because otherwise we would be open to the charge—from the noble Lord, Lord Forsyth, primarily, and many of his colleagues—of allowing another eventuality to occur and we would be obliged to come to the House on the basis of rushed legislation and problems all around. In clear circumstances we should take the opportunity for the House to consider what is necessary in the relatively short term—the next 12 months—before we can get our fundamentally revised legislation in place.

Earl Ferrers: My Lords, I have been trying to follow this. I think what the Minister said in the end, in answer to my noble friend Lord Forsyth, is that the Bill is so constructed that the Government can take into public ownership other companies as well. Is that so?

Lord Davies of Oldham: My Lords, of course the clauses which are subject to the sunset provisions obtain over the next 12 months. They will not be activated because the Government do not foresee or expect that there will be any necessity for activation. Nevertheless, it is only right that the Government, in considering the problems of Northern Rock, should at the same time ensure that the legislation covers any eventuality in order that we look as judicious and as prudent as we are constantly enjoined to be from the other side.
	A number of specific issues were raised in regard to the legislation, particularly by the noble Lord, Lord Goodhart, on behalf of the Delegated Powers and Regulatory Reform Committee. We take those issues seriously but, as I indicated in opening, we have not finalised our position on them at this point. But we shall be in Committee tomorrow, when we will deal with the real issues presented to us by the Delegated Powers Committee. I can assure the House that we take those matters seriously and will respond to them at the Committee stage tomorrow. Indeed, we shall be tabling amendments at that stage which address the issues.
	I emphasise that at this point I am bound to be necessarily vague. If I were vague in the normal process of legislation, I would be open to being upbraided, but noble Lords will recognise that these preparations have been going on while I have been in attendance in the debate and, therefore, that I am not fully appraised of all the issues. But tomorrow we will be. I am not asking for the House to be in suspended animation for any great length of time because tomorrow we will address ourselves to the important issues raised by the Delegated Powers Committee.
	The noble Lords, Lord Forsyth and Lord Naseby, raised the issue of freedom of information. It is very important that we provide Parliament with the requisite information for it to make a judgment with regard to the development of Northern Rock. In due course, the business plan for Northern Rock will be made explicit and public and there will be an opportunity for comment. But, on the question of freedom of information, I ask the House to consider that no other commercial bank is subject to requirements to make public sensitive information. The overall intention is to return Northern Rock to the private sector as soon as possible and it would be inappropriate to have such an entity subject to requirements to release commercially sensitive information. The Treasury is subject to the Freedom of Information Act as a government department and I have not the slightest doubt that noble Lords will ask relevant questions with regard to these issues.
	There were a number of detailed questions which I know I will be obliged to respond to in Committee tomorrow, but perhaps I may address myself to one or two of them now. The noble Lord, Lord Lawson, first asked about the auditing of accounts. Ron Sandler and his team are reviewing the company's finances. Audited accounts for the period to 31 December 2007 will be published in the next few weeks and I hope tomorrow in Committee to be able to give a specific date for that.
	On the issue of instruction, the noble Lord, Lord Naseby, was certainly not alone in indicating certain practices of Northern Rock which have been, in the view of noble Lords, contributory to the troubles it is in. It is not our business to run this bank—we have put Ron Sandler in to run it at arm's length from the Government. He is all too well aware that this is a bank in a unique circumstance and that the degree of public and parliamentary interest will be acute for the foreseeable future. He will have due responsibility in relation to such practices.
	Today's debate has been extremely useful in clearing the ground for the Committee and Report stages tomorrow. I have heard from the noble Lord, Lord De Mauley, how he intends to lead his party into tomorrow's debate and the demands that will be made. We will seek to meet legitimate challenges as best we can and we will see if we can work towards an overall supportive position with regard to this legislation. The Government are clear that the legislation is needed in this country and that it is of the greatest significance. We wish to see it carried through with the maximum amount of consensus but we are aware of the demands that we make on the official Opposition and the Liberal Party of both Houses of Parliament—and, as far as this House is concerned, on Cross-Bench Peers—in introducing the legislation in such a short-term order. I very much appreciated the speech of the noble Lord, Lord Bilimoria, who helped to put all these issues in context. We are looking for consensus. The Liberal Party said it thought that this solution should have been arrived at some time ago and the Conservative Opposition of course have their reservations about certain parts of the legislation. However, the need for the legislation is quite explicit and recognised outside; I therefore hope that tomorrow we can discuss the detail constructively and see this Bill proceed.
	On Question, Bill read a second time, and committed to a Committee of the Whole House.

House adjourned at 9.28 pm.